Because your operating system and monitor have no concept of what 3.5" is in the real world.
They COULD know that but it's not something that screens and computer operating systems/software have necessarily agreed upon. ;)
All your software can do is approximate a translation between real world measurements (inches) and device pixels. Most operating systems today translate that to 96 pixels per inch. So, if you draw a 1" square in your design software, 100% on screen would be 96 pixels.
This would be fine if all screens were built with a resolution of 96ppi (pixels per inch) but that is not the case. They vary (somewhere in the ballpark of 80ppi to 120ppi or so--and that's not including all the new high ppi devices like iPads). On top of that, you can change the dpi resolution of your screen.
As such, 100% in your software will always been a loose translation and will vary from device to device (at least until operating systems and hardware agree to render things in real-world measurements...hopefully we'll get there sooner or later).