storage worked like this for quite a while...
Dynadish has 128MB RAM and 16MB storage. (I don't like word memory in this context because both types are memory. One is volatile, second is non-volatile)
The root folder is actually ramdisk and you can store much more than 16MB. Its capacity is not listed in "files" section.
The "/flash" folder is then real flash storage which is limited to 16MB and which is listed as capacity in "files" section.
I have regularly less than 4MB of free storage, yet upgrades are fine, because they are downloaded to ramdisk. I can also create packet-capture files with more than 10MB, which is definitely more than 4MB of free storage. Why? Because it is saved in ramdisk.
Of course I can't load big file into "/flash" folder because it has limited capacity.
Maybe if you specify what exact steps you do and what is the resulting error message, it might be more clear, what is the issue.