This is a set of two Sashers - one is 1-1/4in and the other is 1-1/8in - depending on the cut size of your fabric.
you are right - 2-1/2in strip of fabric needs a 1-1/4in sasher to feed through to a finished size of 1-1/4in.
The 1-1/8in sasher is for a 2-1/4in fabric strip (some like the slightly smaller binding.)
The fabric size is ALWAYS double the Sasher size.
The Sasher size is ALWAYS the finished size of the pressed fabric strips.
Not in Chains