You can make room by manually deleting old messages or moving them to a custom box (see below). You can also change the default behavior so old messages will automatically be deleted.
- Click the link "Rules, folders & settings"
- On the bottom next to "If folder is full:" select "Delete Old Messages"
- Use the submit button named "change"
In addition to the Inbox you can have up to four additional boxes for grand total of 1000 message storage capacity. The custom boxes can be named whatever you want, for example you might want to create a "Saved" box to move important messages to if you're using the delete messages automatically.