Merge sort has O(n) space complexity because: 1) Creates temporary arrays during merging, 2) Requires additional space proportional to input size, 3) Needs space for left and right subarrays, 4) Cannot sort in-place like some other algorithms, 5) Space requirement is a trade-off for stability and performance, 6) Each recursive level needs its own memory space, 7) Total space used is roughly equal to input size, 8) Important consideration for memory-constrained environments.