Additional space. Note the word "additional".
The message is explaining to you that you are trying to sync a total of 48.26GB of media to your device, but it only has 47.61GB free. To be precise, 47.61+0.657=48.267GB. Therefore, an "additional" 65.7MB is required.
I'll admit, it's not a particularly "accurate"* message. In fact, since it's not possible to add memory to an iPod, the message is actually misleading.
So, all of a sudden you are trying to sync 48GB more to your iPod than you used to do. That's a lot, so ask yourself what you have done recently? Have you added a lot more music to your iTunes Library, added a lot more photos to the folder you use for syncing photos (or have you simply specified a different folder, with far more photos in it)?
I asked you which format your music is in and mentioned that it might be relevant. Have you changed the format of music that you're importing from CDs? Ah!, how about this; have you turned off the option to add music to your iPod at a lower bit rate? When that option is used, iTunes takes (for example)* a 256 kilobits per second (Kbps) file and puts it on the iPod at 128Kbps. The file in the Library is not changed. If you turn the option off, iTunes will now be putting larger files onto the iPod. If there isn't enough space, the message you're seeing would appear.
So, what else has changed, apart from the software update?
* some minor changes made to wording (after initial posting), for clarity