If my input rectangle texture is 10x10 - if I render a quad of say 5*5 with the texture - will the output texture still be 10*10 but with only the 5*5 part of it with sensible values or will the output texture be 5*5 ? I know it's a simple question but I'm going nuts here !

Depends on what texture coords you assign to the vertices of your quad. Assuming you use (0,0), (0,1), (1,1) and (1,0) you'll get a 1/2 sized version of your texture.