Not really, I can read at normal text sizes. But it is somewhat annoying (much like how tiny English can be readable but annoying to read) and used to have my default font size bumped up by one in my browser. I currently have it bumped up quite a bit for Chinese because I
really have trouble with the "tiny little flicks" problem in Chinese.
The consonants of Devanagari are easy to tell apart; they are pretty different. In most cases the "similar" ones are basically with an extra line (प/ष, ब/व) or with a little loop (य/थ, ट/ढ) . (The line/loop has no semantic meaning, these letters are just random letters that look similar) . The only super annoying one is घ vs ध -- the thing up top is a loop in the second one, but depending on the font/handwriting can be rather unclear.
The vowels are also easy to tell apart. There are 12 main ones, and they're made up from some really basic components which are quite distinguishable.
So you can easily distinguish consonant+vowel combos.
Consonant clusters can get tricky, like I said there are a bunch of ambiguous ones. Fortunately you end up realizing which is which and then it's nbd. But like, द्म and ह्म can be infuriatingly similar and you just get it from context.
Bear in mind, at one stage you start sight-reading words, so the actual details of the word matter less.
> Another related question is, because Devanagari's information density seems higher, does that mean shorter text for the equivalent information?
Visually? Yeah. Words can be really small. But it ends up roughly being the same number of code points (and probably more bytes in UTF-8).