When do you see this message? When you launch PS for iPad? When you open an image? When you do something unrelated to Photoshop? Can you show a screen shot of the error?
I haven't tried it, but I've read that offloading unused apps keeps the data (as opposed to deleting apps which deletes the data). You might try one or both to free up more space. What does your iPad Storage look like in a screenshot?
General > iPad Storage
You can also scroll down to see every app you have and how big it is to help you make decisions.