On what the perceptual explanation actually is - there are several and the honest position is that none is universally accepted.
The leading family of explanations involves context and distance judgement.
Near the horizon the moon is seen alongside trees, buildings and hills - things whose distance you understand. Your visual system judges it to be far away, beyond all of them. Overhead there is nothing to compare it with and no distance cue at all.
When something occupies the same angular size but is judged to be further away, the system concludes it must be physically larger, and you perceive it that way. This is the same mechanism behind several classic size illusions, and it is why the effect is stronger over a landscape with depth than over a flat sea.
There are competing accounts - some involving how the eyes converge, some involving how the brain handles the sky as a flattened dome rather than a hemisphere: and there is evidence that more than one thing contributes.
What everybody agrees on: it is in perception, not in optics, and the size on your retina does not change. The disagreement is about which perceptual mechanism dominates.