The moon appears to be larger when it is near the horizon. I believe that this is due to the fact that our brains are not naturally equipped to conceive of how big and how far away the moon is. When the moon sets behind a distant horizon your visual interpretation catches up to some extent with your rational ideas. Looking at this picture you might interpret the object to be a very large balloon in the sky. But even if I tell you that it is a very, very large balloon, it is diffcult to perceive of it being very much bigger than objects in your everyday experience. Try to imagine that this balloon is, say, a thousand feet high, and then see if your perception is changed at all when a reference horizon is added to the picture.

(Click here to add reference horizon.)