This floppy decompresses the entire initrd image into memory at boot, which "wastes" memory compared a proper install on a HDD. You can also lower memory requirements further by enabling swap.
A floppy distro (especially one relying on a compressed initrd) will inherently require more memory. And I suspect the maker of this distro is using a different definition of "minimum" than we would have used back in the 90s (closer to "recommended").
However, it looks like modern linux kernels just require more memory; The kernel binary is certainly larger, floppinux is spending an entire 888KB on it's very stripped down modern linux (doesn't even have networking enabled), while older floppy distros using 2.2/2.4 kernels keep it under 512KB (with networking, and a bunch of other features.
Confirming.
Also the goal was to run LATEST kernel with no changes - just config. With other compression algorithms it was impossible to fit everything into a floppy. And I really wanted to have nano and some space to save few files. Without this it would be totally not usable OS.