So, am I reading this right:
Snatch (Monster)
This creature can grab other creatures with ease.
Prerequisite: Size Huge or larger.
Benefits: The creature can start a grapple when it hits with a claw or bite attack, as though it had the grab ability. If it grapples a creature three or more sizes smaller, it squeezes each round for automatic bite or claw damage with a successful grapple check. A snatched opponent held in the creature's mouth is not allowed a Reflex save against the creature's breath weapon, if it has one.
The creature can drop a creature it has snatched as a free action or use a standard action to fling it aside. A flung creature travels 1d6 × 10 feet, and takes 1d6 points of damage per 10 feet traveled. If the creature flings a snatched opponent while flying, the opponent takes this amount or falling damage, whichever is greater.
Which means a Huge dragon can only snatch a small (or smaller opponent)? Is it Large (unable to snatch), Medium (unable to snatch), Small (able to snatch) or is it Huge (unable to snatch), Large (unable to snatch), Medium (able to snatch)?
Mustin' make double entendres!
The Huge creature can snatch any creature, actually. The first and third sentences and the second paragraph apply to any creature it attacks. It can't do the second sentence of it without being three sizes bigger.
That does not include the size the creature is. If it did, wording such as "one size category smaller" would actually mean "the same size category"... so no.
Does it make sense that it can't squeeze a medium creature? No. But that appears to clearly be the RAW.
Ah, I get it! It can grab an opponent of appropriate size, but it cannot inflict squeeze damage to anything but a small or diminutive sized creature. I would assume the huge dragon would still be able to fling a medium-sized creature as described.