Mi pueblo es pequeño pero muy bonito.

Because pueblo is singular.

• mi = my (before a singular noun) → mi pueblo = my town
• mis = my (before a plural noun) → mis pueblos = my towns

The possessive has to match the number (singular/plural) of the thing owned, not the owner.

In Spanish, possessive adjectives like mi, tu, su normally replace the definite article:

• el pueblo = the town
• mi pueblo = my town

You don’t normally say el mi pueblo in modern standard Spanish.
So Mi pueblo es pequeño… directly means My town is small… without needing el.

Pueblo has several meanings, and context decides which one:

1. Town / village – a smaller settlement, not a big city
   
   • Here, Mi pueblo es pequeño = My town / village is small.
2. People (as in a population, nation, community)
   
   • El pueblo español = the Spanish people.

In this sentence, because it’s described as pequeño and bonito, it clearly refers to a place, not to people.

Spanish uses:

• ser (es) for essential / characteristic qualities:

  • Mi pueblo es pequeño. → Being small is a characteristic of the town.
  • Mi pueblo es bonito. → It is (in general) a pretty town.

• estar (está) for temporary states or locations:

  • Mi pueblo está en la costa. → My town is on the coast. (location)
  • Mi pueblo está muy sucio hoy. → My town is very dirty today. (temporary state)

Small and pretty are seen as permanent or defining qualities here, so ser is used.

Adjectives in Spanish agree with the gender and number of the noun:

• pueblo is a masculine singular noun.
  So adjectives must also be masculine singular:
  • pueblo pequeño
  • pueblo bonito

If the noun were feminine, like ciudad (city), you would say:

• Mi ciudad es pequeña pero muy bonita.

So pequeño / bonito are masculine forms that match pueblo.

You make both the possessive, the noun, and the adjectives plural:

• Mis pueblos son pequeños pero muy bonitos.
  
  • mis (plural possessive)
  • pueblos (plural noun)
  • pequeños, bonitos (plural adjectives)

Everything agrees in number (plural) and gender (masculine, because pueblos is masculine).

Muy is an adverb that intensifies adjectives and adverbs:

• muy bonito = very pretty
• muy pequeño = very small
• muy rápido = very fast

Mucho mainly modifies nouns (and sometimes verbs):

• mucho dinero = a lot of money
• mucho trabajo = a lot of work
• trabaja mucho = he/she works a lot

So with an adjective like bonito, you must use muy, not mucho → muy bonito.

As written, Mi pueblo es pequeño pero muy bonito, muy modifies only bonito.

• pequeño = small
• muy bonito = very pretty

So the town is small but very pretty.
If you wanted very to apply to both, you would typically repeat it:

• Mi pueblo es muy pequeño pero muy bonito.
  (My town is very small but very pretty.)

Pero expresses contrast (like but in English):

• Mi pueblo es pequeño pero muy bonito.
  → Being small and being very pretty are somewhat contrasting ideas.

Y would simply add information, with no contrast:

• Mi pueblo es pequeño y muy bonito.
  → My town is small and very pretty. (just two facts, no implied contrast)

Using pero suggests something like: Even though it’s small, it’s (surprisingly) very pretty.

Sino is used mainly in corrections / oppositions after a negative:

• No es grande, sino pequeño.
  → It’s not big, but (rather) small.

In your sentence there is no negation, so pero is correct:

• Mi pueblo es pequeño pero muy bonito. ✅
• Mi pueblo no es grande, sino pequeño pero muy bonito. ✅

Use pero = but / however (general contrast).
Use sino = but rather / but instead (after no to correct or replace something).

Approximate pronunciation for an English speaker (Castilian Spanish):

• pueblo → PWEH-bloh

  • IPA: /ˈpwe.βlo/
  • The ue is a glide: pwe, and b is soft, between b and v.

• pequeño → peh-KEH-nyo

  • IPA: /peˈke.ɲo/
  • qu before e sounds like k.
  • ñ sounds like ny in canyon.

• bonito → boh-NEE-toh

  • IPA: /boˈni.to/
  • Clear vowels, each one pronounced; stress on ni.

The main sentence rhythm is: mi PUE-blo es pe-QUE-ño pe-ro muy bo-NI-to (stressed syllables in capitals).