It goes back to the fact that we are talking about two different powers. 1 is the power we are transmitting and the other is the power that is lost along the way. The power that makes it to our houses would be P1-P2. We want P2 to be as small as possible.
Maybe it will make sense quantitatively.
Say we want to transmit 1000W of electrical power to a neighborhood. P=IV always so if we transmit 1000 W at 1000 V the current would be 1 amp, 500 V 2 amps and so on. As for the power lost along the way that is like you said P=I^2*R. and we'll say the resistance for the wire is 10 ohms.
Comparing the two extremes (1000V 1 amp v. 1000 amp and 1 V) we get
P-lost=1^2*10=10W lost Voltage drop across the wire is V=IR so 1*10=10 Voltage drop P-lost=(10^2)/10=10 Watts
And the other extreme
P-lost=1000^2*10= 10000000W, but wait that is greater than the Power we started with, so an important point is made. Because we start with only 1 volt we cannot drop more than that along the wire. Solving for the max current under these conditions would be Vdrop/R=I= .1 amps (1V/10 ohms). The lower voltage actually forces the system to flow at a lower current.
Say we transmit 500 V at 2 Amp
P-lost=2^2*10=40 Watts lost. Double checking with P=V^2/R Vdrop=2*10=20 Thus (20^2)/10=40 Watts lost.
Does that clarify at all?