It says to use size 4 and 7, the 4s are for the ribbing, the body would be made with 7s. Even for a loose knitting it doesn't seem like it should be too large on 3.25 mm, though going down in needle size won't always make it smaller, just stiffer. So try using a 3 and 6, see how that works. For lengths, you work to a measurement, not by rows, and you may need to make it shorter.
There are 12 sts difference in the CO stitches for each size; go down another 'size' by using 12 less than the smallest - 128 sts. Or even another size which would need 116. For the sleeves, the difference is 6 sts, or 50 and 44 sts. Try casting on a sleeve first and work that for a while and see how it measures.
sue- knitting heretic