Why did God tell Gideon to reduce the size of his army?

Because God wanted credit for defeating the Midianites.

(If there were many soldiers, people would say they did it without God.)
The LORD said unto Gideon, The people that are with thee are too many for me to give the Midianites into their hands, lest Israel vaunt themselves against me, saying, Mine own hand hath saved me. Judges 7:2