You can do this using keyframes. Place the playhead at the start of the p-i-p and set a keyframe for the picture when set to the largest size (and position) you want. Then move the playhead to the end of the p-i-p, shrink it to the smallest size (and position) and set another keyframe. When you play the p-i-p will smoothly shrink (and its centre move). Details are at:
http://help.apple.com/imovie/mac/10.0.8/#/mova1aaa682b
Below is the most relevant section. It is for changing the location of the p-i-p but the same process works for changing p-i-p size. You can change both and have as many keyfames as you want:

Geoff.