They certainly were widely used. Small panes may have been chosen for aesthetic reasons, or in imitation of older building styles, but other choices were possible, and were made. Here, for example, you can see the windows in the Foreign Office Building in London, completed in 1868. Here’s an 1890s house from Hutto, Texas. Here’s a selection of 1870s windows from San Francisco.
The development of float glass in the 1840s made large panes possible, and subsequent technological improvements made them cheap. Certainly from the 1870s onwards they were a standard element in the palette of design features available to architects and designers