A democracy, a real democracy, is by definition a federal state (but a federal state is not necessarily democratic). Democracy is all about people controlling their own lives. Now it seems reasonable to state that the smaller the group of people, the more control over their lives they have. If you’re a part of a very large group, your individual voice counts for very little. The smaller the group, the more influence you have.
Also, cutting up a democracy in relatively small federal or even local entities allows people to control matters which are uniquely theirs: the city planning, the local public transport etc., matters which are of no concern to people elsewhere in the country and therefore matters over which these other people should have no say.
Instead of concentrating all power – even democratic power – in one central body, certain very important powers are the reserved domain of local entities. A federal system grants the local entities a right to decide on certain topics. The centralized power is either not allowed to intervene in these topics, or can only intervene when certain conditions are present (e.g. when the entities violate human rights, when there is a two thirds national majority in favor of intervention etc.).
An individual, when faced with a monolithic monster of a state, threatening and distant at the same time, feels insignificant, like a grain of sand on the beach. This, of course, does not encourage participation or the feeling of self-control. Powerlessness instead, becomes a fact of life. A single voice is not noticed in the noise of millions and is reduced to indifference. The state does not react to individual claims as quickly as it is supposed to, if it reacts at all. The bottom line is that individuals or small groups cannot hurt the state. Their votes are less than pinpricks. The only elements in society able to influence the centralized state are large, national and centralized pressure groups that are just as distant from the citizens as the state and equally insensitive to individuals’ claims.
For the individual or for small groups of individuals, there does not seem to be any reason to participate in politics or in pressure groups; there does not even seem to be a reason to uphold democracy. Bigness may be good in some circumstances (national defense, for example), but has to be considered as an exception and a necessary evil.
Federalism is necessary in both large and relatively small countries. In both cases it will encourage participation and counteract alienation and a feeling of distance between the citizens and the state.
Decentralization and participation at a local level diminish the number of participants and increase the importance and the influence of each individual.