I understand what Aaron is saying unlike Salyer. In basketball, there are 5 players who are starters on the varsity team with maybe 3 substitutes. The rest just sit on the bench. No, the coaches don't cut but kids don't like to practice everyday and not get to see any playing time either. If you are not talented enough to be one of the lucky 5 or maybe even top 8, you are doomed to sit on the bench the rest of the season and never get to see Varsity time. If you are a freshman, you most likely will play freshman basketball. In very rare cases will a freshman player be moved up to a varsity spot (and tick off all of the other hard working upperclassmen). Most likely, they will move up to junior varsity if they are good.
In wrestling, there are 14 open spots to compete for-not 5. If you are a freshman, you can play varsity if you happen to be in the right weight class and/or you win the challenge on practice night for the spot. There is less chance of a parent demanding that their son/daughter play varsity since it comes down to a match to determine that weeks Varsity. Also, you don't hear so much "the coach doesn't like me so that's why I don't play varsity" crap in wrestling like you do in basketball.
The reason why you see more kids go out in the smaller schools has to do with popularity and the limited amount of activities. At a small school, you HAVE to go out for sports to feel like you belong. There is a lot of pressure from the students and parents. The whole town is obsessed with that weeks games and it is all you hear whether you are in the school hallway or at the county store. At a bigger school, there is actually not that much pressure for a student to compete in sports. Everyone has their own thing to worry about and there are more activities to compete with the week's game. I have taught at schools from 1A-4A. Coming from a small school, I was shocked that there were actually more kids out at the 1A school than at Chapman. It surprises me to not hear people talking about that weeks games or to not know how our teams were doing (all except football). No one really gets excited. The townspeople and teacher's all have their own lives and the kids have their own activities to do. It is much more individualized and not a school thing. I personally feel that some junior high coaches (not just here but everywhere) and the traveling teams focus on winning-winning-winning is what is driving down the amount of kids who compete. They are told at such an early age, they are not good enough. Too many coaches don't encourage ALL of their team athletes but focus on only a select few. These few get diminished each year. The sad thing is that many times, the kid who wasn't that good in 5th grade could have been your superstar in high school.
Just my two cents and observations.