Yeah, this is definitely the biggest problem for folks learning the game. It’s a bad way of conveying info to the player.
One thing that is not made clear, is how the inventory works… Every item in the game basically has its own slot in your inventory. As you get improved satchels and stuff, the number of each item you can carry increases… but even when you start out, you can basically carry SOME of everything. When you get a message that you can’t carry any more, it generally means that you already have 5 of that exact thing… so not picking it up isn’t really an issue.
Now that I’m writing this though, I’m not sure exactly what the saddle bag upgrade even does… I got it, but I also got all the satchel upgrades, so by the end of the game I could basically hold infinite everything.
Overall, the best way to play the game is to not really worry about “winning” the game. Just enjoy the world. There’s SO much stuff to find out there.