Multiple Images vs Sprite Atlases(sprite sheets)

Hi, simple question. What is a better option to optimize the size of the build?

Having ALL my sprites into one single big file, (around 4096*4096) like this one.

Or having every image by itself, I mean having every sprite on a different file. (Currently I have it this way)

I also had to add a lot of empty spaces to every image, since iphone requires textures to be POT. I solved this by changing the canvas size of my images, but no the image itself.

I ran into this while researching but I could not understand what it does.

packing is the right way to do it. While you have to add empty spaces to each image, all packed adds less empty space to that one resulting image. It also improves performance because each single sprite creates a drawcall, while all packed result in just one for them all. The SpritePacker automates that process in the back. You use single images while the packer packs them into one atlas for you.