What is the smallest galaxy in this universe?
It is impossible to know the smallest galaxy in the universe. However, one of the smallest we have found is the Segue 2 Dwarf Galaxy, according to Wikipedia.
How are galaxies created?
Galaxies are formed through a process of gravitational collapse, where large clouds of gas and dust begin to condense and collapse in on themselves. As the clouds become denser, they begin to form stars, and these stars are eventually pulled together into rotating disk-like structures called galaxies.

The process of galaxy formation is thought to have begun in the early universe, shortly after the Big Bang. As the universe expanded and cooled, small fluctuations in the distribution of matter caused regions of the universe to become denser. These dense regions then became the seeds for the formation of galaxies.

Over time, the gravitational attraction between the clouds of gas and dust caused them to merge and grow, eventually forming the large spiral and elliptical galaxies we see today. The process of galaxy formation and evolution is still not fully understood, and is an active area of research in astrophysics.

It's believed that galaxies continue to evolve and change over time, through processes such as merging with other galaxies, the formation of new stars, and the movement of stars and gas within the galaxy.