Inventory size refers to the amount of space an item takes up in the inventory.
Diablo II Inventory Size
In Diablo II each character has a set number of slots in their inventory for temporarily storing items (that can be improved by the Horadric Cube. A Stash is a more permanent storage system, where the player can store more items, in the safety of a Town.
Items in Diablo generally takes up sizes from 1x1 (like a potion) to 2x4 (Great Longbow).