Position size is how many lots to trade so that hitting your stop-loss costs a fixed share of your account. It equals the amount at risk divided by the stop distance in pips times the pip value.
How the calculation works
With a 1,000 balance and 1% risk you can lose 10. With a 25 pip stop and a pip value of 10 per lot, the position is 10 / (25 × 10) = 0.04 lots. Slippage can make the real loss larger than planned.