Why is it necessary to use large gauge, 24, 26 for phone wire? Could not one use 12 gauge. Is there a reason for using fine wire for phone or other devices with low voltage? Or is is it because it takes less room? Thank you

Economics. Have you seen the price of copper lately?

No. 12 AWG would work just fine, but why use a large gauge wire when a small one will work?

Realistically the biggest you should ever go with is 18ga. Most terminations are designed for 20-24ga wire.
If you are using terminations with 110 or 66 punchdowns then even #18 is too big.