Well, the ROM inside N64 carts only went up to 512Mbit (64MB), and that was near the end of it's life at that..
The fact is, for raw game data, developers don't need loads and loads of CD's.. Most PSX games of a large size are packed with cinematics and the like. Media with extra space just gives developers more freedom, to add extras, etc. Textures and the like aren't that huge, and compress quite well..
Example: Ridge Racer PSX is only a few MB if all the CDDA is ripped from it.