A mobile phone could store 10 thousand passkeys without breaking a sweat. Modern hardware keys might only be able to store 25 total in available flash.
The reason for wanting this storage is discoverability - the ability to hit say GitHub.com's new passkey support on the login page, and log in without having to even type in an account name. The browser provides a password manager-like experience. Just like passwords in a password manager, the passkey locally becomes a record of an account on a site.
However, WebAuthn also has quite a few other, non-passkey modes. Non-discoverable credentials expect you to provide a list of handles for a particular user account, which were provided by the keys as part of registration. Only credentials which match a handle are given as options during authentication. For hardware security keys, they leverage this to actually store the record needed for the future cryptography in the handle itself - this mode doesn't take up flash storage.
So the user would type their username, some API returns a list of handles, and this could be used against a security key to authenticate - without no storage limitations.
The problem with this argument IMHO is that a lot of sites take a policy of not revealing if an account exists or not. We've seen recovery processes that say "if this account exists, you should receive an email shortly". A login process that provides an API to detect if a username or email address has an associated account and how many credentials have been recorded against it may simply not be acceptable to the site.
It seems more likely that we eventually have security keys with 10x the available storage, rather than sites adopting this process widely enough to make an impact against the current hardware limits.