If you have infinite inventory space, then you need a way to navigate through infinite items. Towards the end of the game, a player could easily have nearly every item in the game. For some games, that would be fine, but for many, that would make the list of items prohibitively long. Filtering and searching would help, but if you’re looking for an item that you forgot the name of, a search doesn’t necessarily do much.

Then there’s balance reasons. Some games use their inventory system to limit the player, making sure they don’t start a level with enough health potions and grenades to cheese every fight.

In survival games, a finite inventory sets the gameplay loop: you go exploring/mining and then return to base, drop off your stuff and head out again. It makes your base valuable, if only because that’s where you keep most of your resources and moving would be hard. It also gives the player a break from one task. I played a Minecraft mod that gave me an effectively infinite inventory. I went mining for so long that it started to feel like an awful slog. Because my mine shafts went on too long, getting back was itself a hassle. When I reverted back to a more typical inventory size, I could feel how a full inventory breaks up the grind and prevents mining from getting out of hand.