I've read many related questions like this and this, but I am still confused about what (locally) small categories are. My text is "Category Theory Lecture Notes" by Turi in which one reads
A category $\mathbb{C}$ is small if its collection of objects $\text{Obj}_{\mathbb{C}}$ and collection of arrows $\text{Arr}_{\mathbb{C}}$ are sets; it is locally small if the collection $\mathbb{C}(A,B)$ of arrows from $A$ to $B$ is a set for each pair of objects $A$ and $B$.
The text says the category of natural numbers $\boldsymbol{N}$ is small, and the category of finite sets $\boldsymbol{Finset}$ is locally small.
Let me elaborate on what I don't understand:
The condition of being small is pretty loose to me, say, aren't the collections of arrows and objects of a category always sets? If not, can you please show a simple commutative diagram (of a category) in which this is not the case?
Similarly for locally small categories, how can the collection $\mathbb{C}(A,B)$ not be a set? Any minimal example here is also appreciated.