This potion is made by using the Fairy in the cauldron. You can increase the amount of fairies in your potion to make you even smaller than using a single fairy.
Drinking this type of potion will instantly start shrinking your character down to a smaller size. The more fairies used in the potion, the smaller you will get.
This potion has a few uses in Wacky Wizards other than making you tiny for fun. It is used as part of the Beans quest. You need make yourself smaller so you can ride the wooden elevator in the beancano.
You also need to use a Tiny Potion in order to fit into the smaller hole inside of the Spider’s cave to reach the spider ingredient.
This potion is spell number #4 in the potions book.