Hammer Space is basically along the lines of when people pull these huge hammers out of no where, basically pulling something big from nowhere or something smaller than it should have been.   In other cases you're carrying glowing metals, carrying a hundred extremely fragile glass vials without special holding cases, and dozens of other situations that make sense until you think about it.

So my question is how are people solving/ignoring/considering the problem of hammer space if you could call it one?

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I'll go into how I'm covering the problem.

Basically the player has 10 inventory slots that are always there, any item no matter what it is takes up one slot there being no form of stacking per default.    Equiped gear itself also takes up these slots though in a slightly different form.

by default equiped gear wouldn't change inventory at all it stays as just a general spot that you can only put one thing in.   However all gear have the inventory spot it would take up be customize by a crafter/conversion kit so that it takes on different propeties so that your belt spot would for instance have two sheath spots instead of one general spot.   Likewise your leg gear could be customized so that you have a handfull of dagger spots, a handfull of tool slots, magi focus spots, or a mix of them all.

So in general the plan is to have 10 inventory spots however players have to ability to add more inventory spots than that by using mechanics that will only let them put certain items in those slots.   In some cases the specialized slots might have a "stacking" mechanic tied to them as well instead of just a "spliting" mechanic like mentioned above.

It also opens up some other balance mechanics that I could play with if I wanted to for instance cloth gear having more slot customization while plate having very little if any.   Which would be great for a skill based game where you let people wear whatever they want and give them reasons for not just using "the best".

I thought of something similar

PCs have a 6 slot backpack, that allows stacking for small items.   You can't carry armor or weapons in the backpack though, players have different slots for those, as in typical armor slots and three slots for weapons and items.  Crafters also have a seperate much bigger backpack used for gather materials.

So you can't carry different sets of armor, you can only wear it and if you want to switch you have to go home or to an inn.  Getting new armor just sends it back to your house.  Armor is also just cosmetic keep in mind.

But you can get specialized items with slots in them that allow you to carry more and different items, like a doctor bag that is only used for medkits, anti-venom, anti-biotics and such, but this sacrifices one of the three weapons slots.  Likewise you could have a toolbox that lets you carry more parts and a spanner, or a bandolier etc.

And since nearly all abilities are tied to items in some way, it forced players to pick and choose what to bring with them.

I've gone withe a 9 slot approach, with items being categorized in 3 sizes, Compact, Small, and Large. The 9 slots are organized in a 3x3 grid.

Compact Items take one slot, but stack, small items do not stack, and take up one slot, and large items take 2 slots, vertically. I've also considered allowing a user to add up to 1x3 spaces on teh right side of the grid, allowing for 3 stacks, or 1 more large item, by equipping backpacks, etc.