I think it should be about the relation between diameter(D) and square side (x).
(1.) Square Peg in a Round Hole
To fit in, Diameter (D) = x sqrt (2)
(2.) Round Peg in a Square Hole
To fit in, Diameter (D) = x
So, (2) shall be tighter than (1) since square peg required less diameter hole to fit in (which is D/sqrt(2)).