what's driving me crazy is the concept of the driver. I know it's needed to regulate the voltage, that's its purpose.
Next question if the driver regulates the voltage its there a size limit on the driver?
Its important to emphasize that the purpose of the driver is
not to regulate the voltage.
The reason for this takes a bit of work to understand, but its worth it so here goes...
Go to wikipedia and look up "diode",
http://en.wikipedia.org/wiki/Diode, then scroll down to "Figure 5: I–V characteristics of a P-N junction diode.
There you will see the forward biased region on the curve where a laser diode operates. On this part of the curve (where the "forward" line intersects the "Von" line), a small change in voltage results in a large change in current. The nearly vertical line also shifts left and right as the temperature of the diode changes, although they don't show that.
OK, now the light emitted by a laser diode is a function of its current. (It is also affected by temperature, but not as much.) You can see from the I–V curve that if you try to operate the diode at a constant voltage, and the curve shifts due to a temperature change, the current will change a lot and the diode will either be putting out too little light or it will put out too much and burn out. If, on the other hand, you operate the diode at a constant current, you can expect the light output of the diode to be fairly stable.
An ideal laser diode driver regulates current to the laser diode, and it gives the diode as much or as little voltage as it (the diode) wants to have at that particular current.
If you can find an I-V curve for a flashlight bulb, you will see that it bends the other way, so you want to power it with a voltage regulator. A flashlight battery looks a lot like a voltage regulator. Thus, batteries and flashlight bulbs work well together without the need for special drivers.
Its interesting to note that a battery with a high voltage and a high valued resistor in series with it looks a lot like a current regulator, and that combination can be used to power a laser diode (although there are some issues which I will get to).
The reason that some people seem to get away with hooking a laser diode directly to a battery is that batteries actually do have some series resistance, as does the diode and the wires used to connect them. The problem is that the resistance is too low to make a decent current regulator. The diode may eventually get too much current and have a short and unhappy life.
An example should make it clear. Say you've decided to power your laser diode at 100 mA and depending on the temperature of the diode it is going to need between 3.2 and 3.5 volts. To make it interesting, figure also that if the diode gets more than 120 mA it will die.
Lets say that at the moment it needs exactly 3.5 volts at that 100 mA current. If you hook it up to a 4.5 v battery pack and if there is effectively 10 ohms of resistance (in the batteries, the diode, and the wiring), then the diode will get its 100 mA and be happy. That is because (ohms law here)...
(4.5 - 3.5) volts / 10 ohms = 0.10 amps which is 100 mA
Now suppose its temperature changes and now it needs just 3.2 volts. It is going to get
(4.5 - 3.2) / 10 = 0.13 amps which is 130 mA
And 130 mA is more than the 120 mA needed to kill it.
Now lets say you have a 90 volt battery and you stick a 855 ohm resister in series with it. Running the diode with that works pretty well. With the diode at 3.5 volts, it gets 100 mA again.
(90 - 3.5) / (855 + 10) = 0.10 amps = 100 mA
But now if the diode voltage drops to 3.2 v, the diode only gets
(90 - 3.2) / (855 + 10) = 0.10035 amps = 100.35 mA
And the diode is still going to be very happy and a long way from death at 100.35 mA
So that is what a current regulator tries to do, only hopefully even better. (The reality is that many of the ones you buy will actually perform much worse.)
Of course, no one wants to deal with a 90 v battery. They tend to be big and expensive and hard to find now that the age of the vacuum tube is past. Another problem with this approach is that it is inefficient and most of the power is lost in resistor, which is also getting hot. Finally, when the battery voltage drops, the current drops along with it. You need to replace the battery before the battery is actually dead.
(On the other hand, and at the risk of getting flamed, I will point out that if you have a diode that isn't very temperature sensitive, operate it well enough below its maximum current, and use batteries with a relatively stable voltage such as NIMH AA batteries, the resistor approach can work rather well using a red or IR diode and just three cells. It depends on what you're trying to do. Just don't admit on this forum that you would ever consider doing this.

)
What if you were to use a low battery voltage along with a variable resistor and then monitor the diode current, adjusting the resistor as necessary to keep the current stable? That is more or less what a linear current regulator does. If you go back to wikipedia and look up "LM317" you will find a diagram for just such a regulator. You will also find discussions of it on this forum. It's been around forever, and a little Google searching should pull up a detailed explanation of how it operates. It has a relatively high drop out voltage (look it up) which is not a good thing, but if that is a problem you can find low drop out (LDO) designs or look into switching regulators. What fun!
Since we're on the topic of laser diode drivers, be aware that some diodes have a built in light sensor (a separate photodiode) which can be used to better regulate the light output. Its particularly useful for diodes that are very temperature sensitive. On this forum they are mostly ignored.
It can be hard to get an understanding of how voltage and current work. It may help to play with analogies like water going through a garden hose, and you can use math to solve problems. It also helps to play around with inexpensive components. When you see smoke, you realize that your understanding didn't match reality. With time you will eventually "get" it. To get started, buy an inexpensive digital volt meter or two if you don't have them already. Hook up a flashlight to a battery and measure the voltage and current. Buy a resistor or two from Radio Shack and put one in series with the bulb and one in parallel. Figure out what happened and why. Try it again with a cheap light emitting diode. Measure and plot the I-V curve for your LED. Measure the internal resistance of an alkaline AA battery and of a NIMH AA battery. Measure and plot their discharge curves, etc. Good luck!