Small marsupial droppings collecting round hill (7)
I believe the answer is:
potoroo
'small' is the definition.
Although both the answer and definition are singular nouns, I cannot see how they can define each other.
'marsupial droppings collecting round hill' is the wordplay.
'marsupial droppings' becomes 'poo' (I can't justify this - if you can you should believe this answer much more).
'collecting' is an insertion indicator.
'round' becomes 'o' (round can mean a round object).
'hill' becomes 'tor' (tor is a kind of hill).
'o'+'tor'='otor'
'poo' placed around 'otor' is 'POTOROO'.
Can you help me to learn more?
(Other definitions for potoroo that I've seen before include "Nocturnal Australian marsupial" , "Little Oz animal" , "Small rat-kangaroo" .)