I am not a programmer but my understanding is that during install the data is spread out across the platter. That is what the drive controller deals with, addressing data blocks.
The new system in the PS5 doesn't use traditional addressing, instead every piece of data is given a I.D. code that the new Sony high speed controller uses to handle the data internally. No MBR or any of the current drive registry systems are used, so that is why existing games cannot take advantage of the system. They have to be written with the storage method in mind.
I am not saying you won't need more storage, games will get bigger (as always) and people always want more storage) but this isn't going to like going back to a small drive. It is more efficient when used as intended, that is why you are better off putting your big old games on an external drive.
Edit: It has probably been mentioned in here somewhere but for clarity, as it applies to PC games more than consoles, is that you can get around duplication for asset load times by having massive amounts of RAM to cache it into, but consoles do not have that luxury.