Scott #712 Miniature Stamp How?

How is this 712 so small? Image scanned above a typical 712. Appears to be a precancel.

looks to me like a sweater you put through a washer and dryer when you shouldn't've.

Sorry, but your two images mean nothing as two separate images. Individually,they are without reference point.
You need to make a simgle image of the normal and the shrunken stamp together.
(edit: so my reply here does not look idiotic, I will add that the OP replaced two separate images with one combined image in his original post, rather than adding a reply at the end of the thread.)

That said, treatment with liquid ammonia can shrink paper items creating "novelty" dollar bills, etc. This would be considered damage and not an error/freak/oddity. It has been written up in the scientific community, here is an abstract:
https://pubs.acs.org/doi/pdf/10.1021/ed074p1357.2

Although similar, the cancel on the smaller stamp is a parcel post style roller device rather than a precancel. The cancel on the larger stamp is also a roller-style cancel and not a precancel either.

megawat,
Please do NOT edit previous posts after subsequent posts have been made. It often destroys the continuity value of the thread. Thank you.

The word "fake" comes to mind. Perhaps someone had fun with a catalog illustration.

It's not a fake, it's been chemically treated, see link above.
Here is another example in a previous thread:
https://goscf.com/t/50607
And I believe this was discussed at greater length in another thread many years ago, but cannot locate it at the moment.

Well John Becker, I either learned something new or was reminded of something I had forgotten about the liquid ammonia treatment of paper. Being the article cited was from 1997, I suspect it was forgotten by me.

That said copies of stamps, especially mint stamps are to be done in a size above (magnified) or below (reduced) actual size by certain percentages. This was especially true for auction catalogs as well as other publications. Thus there is a supply of non-standard images for which one can add perforations. My Scoot National Album has such a C3a.occupying that page, it is of the enlarged size, in color. On the page by itself with no ready size reference, it raises eyebrows when first seen.

During one of my military assignments, we had a legendary civilian budget lady retire after decades of USAF service.

Her going away plaque had a $1 bill that had been soaked in anhydrous ammonia and it was almost half the size of a normal bill.

Crazy thing is all the printing is intact - just smaller. Very cool plaque!