Actually, the etymology of this is a little bit muddy. It does imply a town so small only one horse would suffice to its needs - but honestly, in small towns in the mid-19th century, when the term originated, the horses would probably outnumber the humans.
Another version, anecdotal as far as I could tell, is that it's the name of an actual town in California, settled during the gold rush. (If anyone can confirm/deny this I'd be amused).
But more likely, it just comes from the fact that a machine or cart that only needed one horse to pull it was obviously smaller, and "one horse" came to mean anything small that didn't need much power.
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