"This chair is too small."
Translation:Dieser Stuhl ist zu klein.
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Nothing dative here and that's the point. See, "zu" is one of the dative prepositions (which is what this lesson is about) but it isn't used as a preposition here in this sentence and Duolingo is trying to teach you that it also means "too" and not to confuse it with "zu" the dative preposition.
Basically, Duolingo is telling you to pay attention to the different usage of "zu" and not to always treat it as a dative preposition; hence, you don't trigger the dative case.