This is due to a combination of two things colliding.
The first is the way that MakeMKV checks for disk space. I don't know the exact details - only Mike will know for sure (and any other developers that work on the codebase) - but you can get an estimate that matches the estimate MakeMKV gets by opening up Terminal (Applications, Utilities, Terminal) and running the command "df -h ~" (that's the two letters d and f, followed by a space, followed by a dash and h, followed by a space, followed by the tilda character - shift backquote, the key left of the 1 key on the main part of the keyboard.) That command prints the size of the drive, the used space, and the available space, amongst other things.
The second is Time Machine keeping snapshots (on APFS formatted drives), to allow for speedy recovery of files if you delete something by mistake and want to recover it using Time Machine.
When you look in Finder, using Get Info on the drive, you'll see two figures next to Available: the available space, and, in brackets, a "purgeable" amount of space. That space is actually in use by Time Machine, but the Mac will (at least in theory) clear it when more space on the drive is required for whatever reason. MakeMKV doesn't know how to check for that, so it sees it as being in use, and complains.
If you're absolutely certain that there's enough space available, tell MakeMKV to proceed anyway. It should work - it should allocate disk space without checking if it's available, relying on the operating system providing an error if it isn't. Alternatively, you can disable Time Machine, per
https://support.apple.com/en-us/HT204015, to free up that space manually.
Mike probably should update MakeMKV to use the 'official' Mac system calls to find out how much space is free, but in the meantime, the above should tell you what's going on and how to deal with it. Good luck.