I have done a tension square as recommended and mine is coming out larger assume I am a loose knitter, the pattern says I need to Knit on smaller needles but not sure how low to go. The pattern says to use 4mm needles so should I go to 3mm or is this just trial and error to see what ones I need?
Without knowing the tension you need and the tension you got, I can't say for sure how low to go. Usually, 1-2 sizes does the trick. So yes, going down to a 3mm and seeing what happens is a good place to start.
Secondly the pattern says to knit stripes using 3 colours of two rows each. Is the best way to do this, to break the yarn each time and join a new one (seems a lot of sewing in of ends) or carry the wool up, like a fair isle pattern
Carry it up. At two rows each of three colors, an unused color will only carry up four rows. It would have to be more like ten before I considered cutting and having to weave in all those extra ends. When you switch to the new color at the start of a row just wrap it around the other two colors first before working the 1st stitch.