The Diamater is 1 inch different, but diameter is not relevant to your speed, it is circumference that's important.
Circumference = (2)(3.14159)(Radius)
Radius = (1/2)(Diameter)
(2)(3.14159)(10.5) = ~65.97 inch circumference on 21 inch tires
(2)(3.14159)(10) = ~62.83 inch circumference on 20 inch tires
65.97-62.83 = ~3.14 inches difference in circumference between 21's and 20's
I think when he said 7 inches difference he may have used the diameter where the radius should have been. But either way it makes a more significant difference that just 1 inch per revolution.
You can plug your sprocket sizes and tire size into this handy calculator to find the change in speed at each gear. It was made by another member, I just noticed it in a different thread....
Gearing Calculator