Why is a larger sensor better?

[dmatsui]

I'm curious as to why larger sensors in camers are better. In theory i would guess that the larger the sensor the larger the size of the picture, however isnt that detirmined by the amount of megapixels your camera has? Another guess at why a larger sensor is better is to help prevent noise at high ISOs. The answer is probably quite simple and i'll probably feel like an idiot later for asking this but
why is it better to have a larger sensor?

 

[DChesler]

http://photo.net/equipment/digital/sensorsize/