I think I probably laughed the most when I read "Fit and Flare" dresses on the list of things not to wear as a petite girl specifically because of this dress. I purchased it years ago (i.e. like in my mid-20's!) and it has been a consistent favorite ever since.
There are a few reasons I think this fit and flare style works.
1) DEFINED WAIST. This dress gives me a definite waistline with the thick elastic band and the diagonal stripes all pointing inwards. Anything that emphasizes an hour glass shape is a win in my book.
2) LENGTH. This dress isn't too short, or too long. It hits at just the right spot to be flirty without being floozy. I was lucky enough that the length was perfect off the rack, but if it's not, take it to your tailor! A good tailor is worth every penny when you're petite.
3) NECKLINE. The plunging V neckline helps my petite frame look longer, even with the fit and flare.
Since the dress is so old, I've linked some similar styles that I like in the sidebar on the Fashion page =)
Happy Rule Breaking!