1024 said:

The question is not “should I do realism or fun” but “can I do realism that is fun”.

No, the question is “how can I make this more fun by making it less realistic”. Reality is the baseline. Your job, as game designer, is to improve on that. Because I've already got reality. I exist in it. If that's all I wanted, then I wouldn't need games at all.

When looking for examples, you can also take a look at the excellent game “Eco” ("Eco : global survival" on goggle if “Eco” doesn't yield anything)

Eco uses a hybrid system where some items are weight-based, usually small items and processed materials. Whereas raw materials are entirely volume-based and cannot be compressed in the least.

Logistics and transportation is an integral part of the game, so any “pain points” are actually part of the game balance and part of how you help have an economy (by having players able to transport stuff for money etc…).

But simultaneously, the finicky issue of having to organize your materials physically is alleviated by the Stockpile. An item that you place on the ground and will, in a 5x5x5 meters area, automatically organize your materials when you put them into said stockpile.

This way, all your raw materials have the same volume in the world at all times, and you need to transport them and store them. But when they reach the stockpile, they stay neatly organized and stacked.

@zipper9998 Fun always wins ?

But yeah, I think @lorenzogatti is right here.

In my opinion, creating a game is an art form (just like making a movie or writing a book). In that case, art comes first, don't charge yourself too much to do something realistic or be worried if it's not realistic enough.

Just think:
If you do something very realistic, will your artistic vision be compromised? If not, go ahead. If yes, stop, stay calm and try to follow your vision as much as possible.

Remember, reality is not always good for art. What can work for reality, may not always work for art/fiction.

Also, players will always use their imagination to figure out how non-realistic things can happen in the game (I always thought Steve from minecraft was just punching and pushing the items into the chest, it's even funny in a way).

Just don't worry about it.
I hope I've helped.

Worth considering that processed resources tend to take up less space individually than raw resources. A tree make take up an entire tile, but once you chop it into logs and saw those into planks… you have a lot of planks, each of which is a fraction of the size of the original tree.

Games are a way to pass time and getting some reward (fun, learning, etc.)

If piecing together realistic constraints to make something work is rewarding, then that can be a fun game!

Nobody thought reducing pollution around living quarters was an interesting game, until Sim City.

Nobody could conceive of a game about doing the dishes and taking out the trash, until The Sims.

That being said – you shouldn't build things “because they're realistic,” you should build things “because they're fun (according to you.)”