When i went to an island to collect items it says " You don't have enough space in your inventory!" When i have space even when i place items for auction to make more room it still shows that i have 30/30 spots full.

Here is my inventory screenshot.

You need to actually sell an item or destroy it in order to get some free space. Auction doesn't provide storage services, so items in trades still take place in your inventory until someone buys them.