My significant other and I used to live in a 500 square foot apartment above a two-car garage. Five hundred square feet may not sound like a lot of space, but it felt spacious to us.
Our little garage/treehouse space was quite perfect, actually. It never felt crowded or cramped or cluttered because we chose to be very deliberate about our stuff, keeping only the items we used and loved.
Before we bought something new, we had to be sure it would fit into our space. We also tended to follow the one in-one out rule. For example, if you got a new shirt, you would have to let go of another shirt so the new shirt could take its place.
Living in a small space can be tricky, but keep in mind you are in control what and how much you bring into the space. Less really can be more.