Why did UI's turn from practical to form over function?
E.g. Office 2003 vs Microsoft 365
It's easy to remember where everything is with a toolbar and menu bar, which allows access to any option in one click and hold move.
Seriously? Big ribbon and massive padding wasting space, as well as the ribbon being clunky to use.
Why did this happen?
Padding is a very versatile thing in UI design, and none of it will make anything look terrible.
Even in your first example, the toolbar has slight padding on the edges and so do the buttons.
The reason there's more padding now is because it makes it easier for new users to process everything.