When FME runs a large, multi-dataset translation, it often requires a lot of temporary disk space. This is particularly true when running a Dataset Fanout, because there is no guarantee that the features will arrive at the fanout in a single dataset group. Therefore, FME has to write out all of the datasets to temporary storage, and then fan them out afterwards. So the amount of available disk space is important, but on a performance issue you might be more concerned about the speed of all this disk activity.
Where possible, set your temporary directory to point to the fastest disk you have available. This FAQ tells you how to use FME_TEMP to set a different temporary directory.
Don't set your temporary directory on the same disk that the operating system uses; FME might be slowed down by the operating system writing to the same disk at the same time.
Try to set the temporary directory to a disk that has a large amount of free space - it won't improve the speed but it may prevent a large translation from failing due to a lack of disk space.