Final Cut Pro drops frames when playing 8K video

Problems are almost certainly due to trying to play it from a USB drive. Try copying to the internal drive or use an external SSD and it might play without rendering. I can play and do basic grading on 8K ProRes and H265 on my M1 Max MBP from an external SSD without issue. You have not said anything about the codec either which might also be important. Frame rate also.

It depends on the SSD and the connector. Should be Thunderbolt 3 or 4

I use USB-C SSDs and there is no problem with playing and exporting 8K video, even with my older G-Technology 520MB/s ones which never even reach that speed.. My G-Technology Thunderbolt 3 desktop drive (which I use mainly for stills), connected by a thunderbolt cable can't handle that at all. I think there is a threshold maybe around 300MB/s or so below which things really slow down.

Can you give complete details of system including the drives, how big, how much free space.

It plays all the video off the drive. If you’re playing multiple streams you might try rendering. It depends on what you’re actually doing.

First, dropping frames is not a big deal. Turn off the warning, lots of computer drop frames on less. You don't see it, just edit.

Second, a 16TB drive needs a minimum of 2.4TB free space.