Translation:I think your shirt is too small.
As elsewhere in this topic, the female variants for clothing seem to be ignored. 衬衫 can be translated as 'shirt' or 'blouse'. Given that women tend to have more issues with upper-body garment size than men I regard this as particularly relevant to this translation.
An amusing thought, but no, I think it just emphasizes that it is too small, not just very small.
[Edit: TY Looli23 - we are all learners here :)]
了 gets used in a number of different ways, and I think this particular exercise is about one of them where it is used in a pattern of 太[adjective]了. This changes the meaning of 太 from 'very/extremely' to 'too/excessively'.