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Your island has two storage spaces:

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Windmill Storage holds all harvested crops and special event items (e.g. wrapping paper, pumpkins, buckets of sand). Current maximum size is 1,020 storage slots (but this can be increased with Wishing Wellspring Island "expansion" wishes).

Treehouse Storage holds all other resources and goods. Current maximum size is 1,020 storage slots (but this can be increased with Wishing Wellspring Island "expansion" wishes).

Upgrade pieces can sometimes be found in daily chests, merchant ships, pet feeding rewards, and seal dives.

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Guide

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1) Measures your current storage capacity (this picture shows 36 out of 50 storage slots are filled).
2) Displays your stored items and their quantity.
3) Displays resources needed to increase storage space.
4) Tap to increase storage space (once resources or gems are available). Different resources are required for each of the storage spaces, and more resources are required each time you increase your storage


It’s always a good idea to monitor your storage space to see what you can fit. Remember to upgrade when necessary!

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Reference:

The above is Quoted in part or full directly from the Official Paradise Bay FAQ