Indeed, my template is formatted at 300x300 DPI, which is why the images look so big on a computer screen. As long as when you print, you ensure you are printing at 300x300 resolution, the resulting printed card will be the size of an actual Dominion card.
The higher the resolution, the better quality you get from the print-out because more data (pixels) is being squeezed into each square inch, when displaying on a screen, a pixel is a pixel, so higher resolution ends up with large looking images. There's a big difference between what a screen can display and what a printer can print, quality-wise.
If you aren't too concerned about printing quality, you can always adjust the resolution of the template in photoshop. Default resolution of a new photoshop file, and most .jpg images, is 72 DPI.