The why is probably because of how the engine handles drawing all the objects. You have a limited amount of Z-buffer to work with the closer you are the z-buffer handles more detail. The further out you are the less precision it has. Which is why you get Z fighting at a distance not up close usually.
To compensate for this objects are scaled and drawn in a painters algorithm. They can also use space partitioning. It really depends on the programmer and engine he designs. In short there is more than one method but to draw very large scenes you can't just draw them. It simply doesn't work.
So if you are going to scale everything you have to also compensate for it by simulating the distance with the map. Probably the only time in this game you are seeing real distance is when you are actually in the that sector.
So what you are experiencing when crossing a boarder is the change from simulated distance to actual distance and apparently they are not exactly equal. This is more noticeable if something is near the boarder edge.
The reason making sectors larger works it tends to move things away from the boarders edge and you end up crossing that boarder a lot less because you have more space to move around.
If you want to learn more specifics on it look up large scene rendering with openGL.