Why the busiest hour is the number that matters
A water heater does not need to hold a whole day of hot water. It needs to get through the worst hour.
In most homes that is the morning, when several people shower one after another. If the heater covers that, the rest of the day looks after itself, because the tank reheats while nobody is using it.
So sizing from daily use gives you a tank far bigger than you need. Sizing from the busy hour gives you the right one.
The other thing that matters is how fast it reheats. A small tank that recovers quickly can outperform a bigger one that recovers slowly, if the showers are spread out rather than back to back.
