Android - "Insufficient storage" when trying to install new app

In short: 25 MB free internal storage is minimum requirement (source: TechniPages, AndroidCentral). If free space falls below that, the "insufficient storage" error is triggered.

For details, see:

• Why does my phone keep telling me it has low storage?
• Not enough storage on android device
• Android “Internal Storage” used but not reported
• I keep getting storage errors but I have plenty of free space, what is safe to remove from internal storage?
• HTC Desire low on internal storage, I'm clueless — Any help?
• Message Memory Full, Incoming message rejected

And many more -- this is a quite "frequent question". For more results, simply follow the internal-storage tag.

The other 200 MB is reserved for future purposes e.g.

1.Saving cache onto disk to free up RAM

2.File System

3.Moving some processes data to SD/ Flash Memory

It is recommended that you have at least 300 MB free space in case you want to install apps. And I'd recommend using a cleaning tool such as ccleaner because android is not good at memory management.