I have done a lot of felting -- mostly bags, flowers, and stuff like that but not garments.
Actually, if I can be pedantic here what you are actually doing is fulling -- felting is using roving, wet or dry. If you look up 'fulling' you can find more information.
Knitted fabric that is fulled is not at all stretchy, and not very flexible -- its more cardboard-y, IYSWIM. I am not sure I would want to wear anything that was not pretty structured e.g. like what we called boiled wool jackets.
Otherwise I agree with everyone else. I find that going up about .5/1mm from the recommended needle size is a good idea, as it felts better. The sts need room to rub together to felt effectively. How tight a piece felts has a lot more to do with the original thickness of the yarn (I double up worsted weight yarn for bags) and how long you agitate it. If I want a tighter felt (a smaller bag, and denser fabric) I just turn the dial back on the washer and let it go. (PS If you are fulling a lot, you should zip the knittted items up into a pillow protector so you don't clog up the washer with wet linty furry stuff).
Garter stitch does felt differently -- kinda ridgier, but not exactly thicker, though the difference fades the longer you leave it to felt.
As Goblin says, felting, or fulling, occurs through friction and is much more effective when there is water, and even more so, when it's hot and soapy.
Basically when you card wool to make roving, you are smoothing and straightening the fibres out and lining them up the same way, so then they can be twisted and spun together into a strand. When the fibres get wet, and warm they are lubricated and can rub together and get curled and tangled up again like wire wool.
Basically, things do shrink up more than in, partly for the same reason that you need more sts than rows to make an inch. The longer you agitate, I find, the 'shorter' they get relative to width.
Also beware that some pure wool will not felt if it has been bleached. White wools will often not felt because bleaching stops the fibres curling up, kind of like when you chemically treat curly hair to straighten it.
Felting something, like a garment, really needs to fit, is risky because you never know what is going to happen -- you have to watch, and experiment and make mistakes.