In animals, genes are paired, one of the pair inherited from the father, the other from the mother. For the purposes of this question, we can say that where the two genes are different, one is "dominant" over the over (usually the more "useful" of the two). So an embryonic wolf with one gene for normal size and another for abnormally large (or small) will grow to normal size. But the other gene, though not expressed in that wolf, may still be passed to its offspring. When a wolf has both genes causing it to grow to abnormal size, it will as beso says, be unlikely to survive to pass these genes on.
Genes for other characteristics work similarly.
So, the answer to your question is, that man has selected for the genes present, but not often expressed, in the wild wolf to create the breeds of dogs we see today. If dogs were allowed to breed freely with no interference from man (many probably would not be able to do so), the normal genes in the population would soon dominate and dogs would become "standardised" with wolf-like characteristics.