Power dissipation is purely a function of the current flowing thru the resistance that it flows thru.
Current limit resistors need to be "big" enough to handle the thermal load induced heat that the current they are dissipating will generate.
Sense resistors are selected to generate a certain voltage for the current that you're programming the resistor to "react" to. I suspect that the 1.25 factor is a current threshold voltage limit that has to be matched/exceeded for the current limiter to kick in.
As far as power dissipation in the sense resistors goes, these may not be so critical as a low ohm resistor won't get that hot so it won't change value all that much. It would not hurt, however to use a decent sized one as well as a aluminum encased precision one (as supplied by DALE).
This way you can heat sink it so as to have a more accurate and consistant current sense funtion - keeping a constant temp across the current sense resistor is critical to accurate current sensing. A review of the resistance coefficient vs temp value will more clearly show/explain why.