I had a 128GB MacBook Air before I got a 256GB MBP. Oh lord that got awful because of using Windows, Parallels and some other stuff. I have handed that one down to my mom/her grandkids and cleaned off enough to keep 25GB free. I really just needed maybe 150GB of storage. But just like with iPads and iPhones, I don't get a 128GB iPad because I need 128GB. I get it because I need at least 33GB.
And yes, free space affects performance, especially if your RAM is almost fully used. The OS uses storage as backup RAM. That's one of the many reasons flash storage makes a machine so much faster.
If I may, semantics: none of these Macs have "hard drives." The generic term is "storage." I know what you mean and I'm not poking fun at you because I still use that term a bunch. But I try to say "storage" to be correct as much as I can. That's 13 years of being a copy editor for you. 🙂