Ce défaut est petit.

Because défaut is a masculine singular noun, and it begins with a consonant sound.

French demonstratives work like this:

• ce
  • masculine singular noun before a consonant sound
• cet
  • masculine singular noun before a vowel or mute h
• cette
  • feminine singular noun
• ces
  • plural noun

So:

• ce défaut = this defect / this flaw
• cet arbre = this tree
• cette erreur = this mistake

Since défaut is masculine and starts with d, ce is the correct form.

Here, ce is a demonstrative adjective (also called a demonstrative determiner). It points to a specific noun, like this or that in English.

So ce défaut means this flaw or that flaw, depending on context.

It is not the same as ce used by itself in expressions like C’est..., where it functions differently.

Est is the third-person singular form of the verb être (to be).

So:

• ce défaut = this defect / this flaw
• est = is
• petit = small

French usually needs the verb to be here just as English does:

• Ce défaut est petit.
• This flaw is small.

Because petit is being used as a predicate adjective: it describes the subject after the verb être.

This is normal in French, just as in English:

• Ce défaut est petit. = This flaw is small.

Compare that with an adjective placed directly next to a noun:

• un petit défaut = a small flaw

So:

• un petit défaut → adjective inside the noun phrase
• ce défaut est petit → adjective after être

Yes. In French, adjectives usually agree in gender and number with the noun they describe.

Since défaut is masculine singular, the adjective is petit.

Other forms would be:

• masculine singular: petit
• feminine singular: petite
• masculine plural: petits
• feminine plural: petites

Examples:

• Ce défaut est petit.
• Cette erreur est petite.
• Ces défauts sont petits.

Défaut is masculine.

That is why you get:

• ce défaut
• un défaut
• petit rather than petite

This is something learners usually just need to memorize with the noun.

A careful pronunciation is roughly:

suh day-foh eh puh-tee

More exactly in IPA:

/sə de.fo ɛ pə.ti/

A few pronunciation notes:

• ce sounds like a soft suh
• défaut ends in an o sound; the final t is silent
• est is pronounced eh
• petit ends with a pronounced tee; the final t is silent, but the i is pronounced

In normal speech, the e in ce or the first syllable of petit may be reduced or weakened.

It is grammatically correct, but whether it sounds natural depends on what you mean.

If you mean the flaw is small in physical size, petit works well.

If you mean the flaw is minor / not very serious, French often prefers something like:

• Ce défaut est mineur.
• Ce défaut est léger.
• Ce n’est pas un gros défaut.

Also, un petit défaut is a very common and natural phrase meaning a small flaw / a minor imperfection.

So the sentence is fine, but in real-life French, another adjective may sometimes sound more idiomatic depending on the context.

Ce défaut means this flaw or that flaw: it points to a specific one.

Le défaut means the flaw: it refers to a flaw already known from the context.

So:

• Ce défaut est petit. = This flaw is small.
• Le défaut est petit. = The flaw is small.

The difference is the same basic idea as this/that versus the in English.

Yes, but it means something slightly different.

• Ce défaut est petit. = This flaw is small.
• C’est petit. = It’s small / That’s small.

With C’est petit, the noun défaut is not stated. It is more general and depends more on context.

Also, here ce is not a demonstrative adjective before a noun; it is part of the fixed expression c’est.

Yes. Petit often corresponds to both small and little in English.

Examples:

• un petit chat = a small cat / a little cat
• un petit défaut = a small flaw / a minor flaw

Which English translation is best depends on context. In your sentence, small is usually the safest choice.