Popup claims iPhone storage is full while gauge bar says otherwise

I have an iPhone 7 Plus with 32GB of storage.

For a good while now, I've been (seemingly) running out of storage space, most apparent when updating apps. Yet, in reality, I should have plenty of space left on the device before I need to even start sweating about running low.

Here's a screenshot of how the situation looks. This is after trying to update the MS Teams app through App Store..

By layman logic, the dark grey bit of the bar is supposedly everything else except Apps, iCloud Drive or Photos. Should that not include iOS itself also? Or is iOS denoted by the light grey bit of the bar? Either way, in UX logic, the amount of headache this gives me is immeasurable. You can't just expect users to decipher the amount of space the systems needs and how much free space you really have unless they are denoted somehow, which - unless the light grey bit of the bar is denoting - they aren't.

So:

1) Is my storage actually low and Apple's way of denoting things is useless

or

2) Do I have plenty of space left and something else is just wrong?