It's just not optimised for tiny files. It absolutely would work with no problems at all, and you could definitely use it to store 100 billion 1kB files with zero problems (and that is 100 terabytes of data, probably on flash, so no joke). However you can't use it to store 1 exabyte of 1 kilobyte files (at least not yet).

Bad space efficiency and possibly exhausting your inode system (ie there is space left on the device, but you can't put any files on it)

Probably wasting space and lower performance.