You are getting a bit confused as to what the archive support is, and what the harddrive section of WinUAE is for. Plus what the emulator is actually doing when you run it.

First of all, you need to consider that WinUAE is emulating a real Amiga, so it works just like the real thing expecting files to be loaded via floppy disk (ADF) or from harddrive (HDF).

Archive support means that WinUAE can handled files that are archived using Zip, LHA, ADZ, HDZ etc file formats. If for example you have an ADF file that is zipped then WinUAE will be able to use it zipped, just as it would if you were using the original ADF file.

However that is it. An ADF is still a disk image, and WinUAE sees an ADF as though you were putting a floppy disk into the Amiga's disk drive. If more than one ADF is inside a single ZIP archive then it won't know what to do with it because it would be like trying to put more than one floppy disk into the Amiga's disk drive at the same time. Each ADF has to be in its own archive, or they all have to be extracted so they can then be loaded into the disk drive one at a time.

The Harddrive tab is exactly what it is called. A section to manage Amiga harddrives in WinUAE. You can connect a real Amiga formatted harddrive to a PC and boot from it in WinUAE, you can create a virtual Amiga harddrive in WinUAE called a hardfile, while has the file extension HDF and WinUAE sees this just like a real Amiga harddrive when the emulator is running. Or finally you can tell WinUAE to use a directory on the PC as a virtual harddrive.

So when you are trying to use your 7z compressed archive of floppy disk ADFs as an Amiga harddrive it makes no sense to the emulator. Your TOSEC archive is not an Amiga harddrive file, it is a large collection of Amiga floppy disk images (ADFs), and these need to be loaded one at a time into the Amiga's/emulators floppy disk drive.

Can you now see why it wouldn't work?

So to use all of your TOSEC collection you first need to extract the whole lot into a directory on your PC. Then you can load each game one at a time via the floppy drive DF0: drive entry.

Your finaly question, how to save space. The best option would be to extract the whole archive into separate ADF files, and then recompress each of the ADFs into their own zip files. WinUAE will still be able to read them. Zipping each file will shrink the file sizes from 880KB each to normally something between 300-500KB, so it is worth doing if you need to conserve HD space.