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Nobody is misleading you. Our screenshot has been taken when the Photos Carousel is using the Photos module as a source. All thumbnails in the photos module are of 300x200 size. And yes, they still get cropped in case a photo doesn't meet the 3/2 aspect ratio. In your case you seem to be using the Albums module as a source - in that module all thumbnails are square.
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There is no such option unfortunately. Due to a 2 reasons I've mentioned above:
1) The albums module in UNA does not provide a custom sized thumbnails for photos. Instead it provides a fixed size/aspect ratio thumbnails to be used in galleries and previews. The Photos Carousel module does not create its own photos, it just uses what the source module offers.
2) All items in the Photos Carousel must be of the same size for the transitions and animations to work correctly.
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