1. How is adding *text* "consum(ing) quite a bit of space"? It's literally text (no fancy VFX, Textures, etc.).
This was an issue in Final Fantasy XI, as well. The reason the community devs gave over there was that the dictionary used available RAM to store them into memory. Although you may not use the terms, the terms are readily available as you type in case you would use the Tab key for a translate function.

The amount of words for FFXI grew so large that the devs even removed a large amount of less popular/used words to accommodate newer important terms to free up memory.

Although the PS4 and PC have no problem with RAM, the PS3 has a smaller pool of memory to work with; considering the fact that it even manages to run the game at around 15-25 FPS, you can assume that the amount of memory available for even the auto-translate dictionary is very very limited.