It turns out it was built by a Frenchman on the Spanish throne (as happened), and he was born at Versailles, so he wanted a palace built that would be bigger and more beautiful than Versailles. Now I can't yet comment on the beauty of Versailles (as I haven't been there), but I'm pretty sure that on the outside at least it will be nicer-looking. However, it is bigger; in fact at 3,400 rooms, Madrid's Royal Palace is the biggest in Western Europe, and the second biggest in all of Europe - beaten only by one in Austria.
So there you go - it is BIG!