The 1994 NASA report Wind tunnel test of a variable-diameter tiltrotor model
documents wind tunnel tests of a 1/6th scale variable-diameter tiltrotor.
Fig. 3 on p. 4 (p. 12 of the pdf) shows the mechanical design of the blades.
Fig. 2, below, shows the blades extended in hover to increase thrust, and retracted in horizontal flight to not hit the fuselage. [Edit: Also, Wasserwaage's comment's patent description notes that horizontal flight's higher airspeed demands more RPM, which demands smaller diameter, both to not overload the engine and to avoid sonic booms at the tips.]
Page 79 (p. 81 of the pdf) of Winning indoor designs, 1987-1989 U.S. indoor championships
reports that the winner of the 1998 F1D world championship used a variable diameter propeller. It used a rubber band to retract the blades toward the hub as the load changed through a flight. Its design is meticulously explained on pp. 8-17 of Indoor News and Views, #121, Spring 2007.