Why is working memory so small?
There's a huge amount of perspectives you could take in answering a question like this, but I would like to approach it from the perspective of dual process theories (see the Evans, 2008 Annual Review paper for an outline). I'm not going to reference this answer much beyond that, because almost all the information is adapted from this review, with some explanation.

There's any number of specific dual process theories, but they all state that cognition is divided between type 1 processes, which are fast, parallel, automatic, implicit, and generally don't vary between people, and type 2 processes, which are slow, serial, controlled, explicit, and crucially, rely on working memory.

The evolutionary side to this is type 1 processes are the specialized, domain specific evolved functions of our brain to deal with specific problems, like predicting the destination of moving objects, recognising faces, or figuring out how similar lions are to tigers. Type 2 processes (i.e. working memory), on the other hand, are domain general, in that they can be flexibly applied to any domain, rather than just the task they evolved to solve, but this flexibility comes at cost of limited capacity, increased mental effort, and so slower processing.

This limitation is referred to in the dual process literature as 'the singularity principle' (Evans, 2006) - system one, by processing in parallel, can deal with an incredible amount of information at the same time (and needs to, because it takes care of the basic functions that keep us alive from day to day), while the slower type 2 processes can only actively process one piece of information at a time (but can keep "7 plus or minus 2" "chunks" of information in mind if they don't have to be manipulated; Miller, 1956).

...By analogy, think of the difference between the old-fashioned telephone in your house, which was designed for only one function, and so performs it perfectly, with minimal resources, and a smartphone, which can theoretically perform any computational or communicative function, but occasionally disconnects your calls for no apparent reason.

Some References

Evans, J. S. B. (2008). Dual-processing accounts of reasoning, judgment, and social cognition. Annu. Rev. Psychol., 59, 255-278.

Evans, J. S. B. (2008). Dual-processing accounts of reasoning, judgment, and social cognition. Annu. Rev. Psychol., 59, 255-278.

Miller, G. A. (1956). The magical number seven, plus or minus two: some limits on our capacity for processing information. Psychological review, 63(2), 81.