Today I finished the hat on my new Knifty Knitter purple round loom.  This loom has a 5/8" gauge.  This is the same gauge as the small Knifty Knitter blue round loom.  I used one strand of a worsted weight yarn and the "U" knit stitch which is a looser version of the flat knit stitch.  On this adult hat size loom, this produced a toddler size hat.  I also shaped the top of the hat so that it is not so bulky when you gather it.  I used the directions I found here for shaping the top.  Finally I have my baby hat completed in the correct size.  

This hat was made on the red Knifty Knitter using the knit stitch.  I'm not sure what I'm doing wrong, but this hat turned out to be a preemie size.  So far I've made two hats on this loom which is supposed to be a youth size, and both hats are very tiny.  The tension was not tight, so I'm not sure why these hats are turning out so small.  I'll try knitting another hat on my new KK purple round adult loom and see what happens.

P.S. - I've received some very helpful advice from some seasoned loomers.  When using the knit stitch, the sizing for the Knifty Knitter looms changes because the sizing is based on the e-wrap which produces a larger item.
Here is what one loomer uses for sizing with the knit stitch:
smallest blue loom = slipper socks and very tiny preemie hats
red loom = infants, babies
green loom = toddlers to youth
yellow loom = bags and large size men's hats
purple hat loom = teens and adults

Another important matter to consider in calculating the gauge for the size of your item is to knit a 4-inch square.  Count the number of rows and columns of stitches in the 4-inch square and divide each by 4 to get how many stitches per inch and rows per inch that loom, yarn, and your tension produces.