Came across these small Zwave controllers here .These are small enough to fit inside the electrical switch housing in the wall. Just wondering how is this device so small as the AC->DC transformer is usually pretty big. Are they using some special kind of smaller transformers that are there?
It's probably a switched-mode power supply which tend to need smaller transformers. If you pull apart a small AC adapter / wall wart you'll often find it contains a lot of empty space and the AC pins take up a substational amount of the total size.
Here's an example photo taken from Ken Shirriff's blog - although maybe it's a fraction smaller than it should be because it's a page describing an unsafe model: