Historically, storage capacity has been an important factor in game design. Adding more space to early arcade, PC and console games meant adding more floppy discs or RAM chips, increasing the cost of production and reducing profit margins. This forced game designers to be resourceful, making the best of what they had with innovative graphical and programming tricks.
With the jump to CD-ROMs and their 700MB of storage capacity, developers were suddenly faced with the opposite problem -- too much space. Early CD-ROM developers filled the bounty with slapdash video and pre-rendered graphics that often had little to no impact on gameplay or even game enjoyment. Still, epics like Myst and Final Fantasy VII presented impressive gameplay experiences that could only be done on CD, sealing the fate of cartridge-based consoles like the Nintendo 64.
Since then we've had a few more big jumps in storage capacity, but again we seem to be getting to a point where game designers are running up against the storage limits of the day's medium. Yet the actual core programs that drive today's games is only eating up a fraction of that space. Aesthetic features like high-definition cutscenes and textures, and auditory features like extensive spoken dialogue and 7.1 Dolby surround sound are gobbling up amounts of space that would be considered nearly unfathomable just ten years ago. More disc space can also lead to more detailed and expansive levels and more complex character animations, enriching the gameplay experience more directly.
Sony is obviously betting that this console arms race will hinge on stuffing as much as possible onto these higher capacity discs, and that regular DVDs won't be up to the requirements of modern games in just a few years time. History shows this may be a safe bet -- nature hates a vacuum, and game developers similarly hate leaving empty space on a storage medium for too long. But unlike the early days of expensive ROM chips, adding more space today is as simple as adding another cheap-to-produce DVD to the game case. Sure, it's annoying having to change discs mid-game, but will gamers consider the convenience of a single disc worthy of an expensive, unproven blue-laser drive technology in their system?
While retail console games taking up more disc space than ever, the size trend is being reversed in other areas. Blockbuster Xbox Live Arcade games routinely come in at only a few megabytes, and the Nintendo DS' one gigabit storage capacity hasn't stopped it from becoming a success. On the PC side, games like Will Wright's upcoming Spore use procedurally generated content to limit disk space usage without limiting graphical or audio fidelity. This is all by way of saying that when it comes to game storage, it's not the size that matters, but what you do with it that counts.