Teacup is a nickname for a very small dog in that a particular breed, there is no "official definition for word teacup, and people use it in many different ways. The Yorkshire Terrier Club of America, (YTCA) is the mother club of the yorkie, and sets the standard for the AKC, which is just a registry. Yorkies belong to the "toy" group and the standard for a Yorkshire terrier, is said to be 7 pounds and below. So there is no other classification besides standard. Other breeds have three classifications such as standard, miniature, and toy, with toy being the smallest, but no breed has a classification for teacup, this is just something people started calling them because some toy breed puppies can fit in a teacup. YTCA members are forbidden to use the word "teacup", and breeders who use the word, often sell dogs that grow up being over standard size. So your uncle is partially correct, there is such a word, it has no formal definition, so it's meaningless, and when a breeder uses the word, you should run the other way. Here's what the YTCA says about "teacups."
Yorkshire Terrier Club of America (Awards). I have heard of other members saying that they were given "papers" saying that their dog was an "official teacup" but anyone can make up papers, and these are worthless, the AKC would not put this on any of it's papers because there is no such classification.