Let’s say I have an idea but it’s a niche, I know it won’t be more than ~1M in yearly revenue at its best. What is interesting for YC and what not when it comes to potential size?
YC's in the business of high-growth startups. You don't have to know how to build a high-growth startup—YC partners are experts in teaching and helping founders to do that. But if you're sure you don't want a high-growth startup, that might mean it's not a good fit.
However, your question is trickier than it seems because so many major startups begin as 'toy' or 'niche': https://paulgraham.com/altair.html. If you make something people want, there are often ways for it to grow—and perhaps grow big—that aren't obvious at first. The Airbnb founders stuck for a long time with their 'airbed' idea before making the obvious-in-retrospect (but not at the time) leap to a much larger market.
