Your character can only lift so much weight before nothing else can be picked up. Even if you’re below this limit, carrying lots of stuff around can have negative consequences. You can transport more items by using a mount with saddlebags, rigs, floating discs, and other means.
Players use the following formulae to approximate how much they can carry:
Burden starts kicking in at: 33+strength/3 kilograms
Maximum carrying capacity: 50+strength/2 kilograms
There are many ways in which you can find yourself exceeding your maximum carrying capacity. One simple example is if you have your strength magically reduced. If you go too far over your max, you’ll tend to start dropping things. The game will try to start with items in your inventory that aren’t on your keep list, to reduce the chances of dropping valuable gear.
The bulkiness of an item also has some effect, but weight is most important.
Being burdened negatively impacts many skills, not the least of which are swimming and hiking. It can also slow spellcasting and reduce your defensive rating.
Not to be confused with there being a maximum number of items that can be carried, which is a concession to keeping the game from being lagged rather than a balance issue.