I went to Cologne Christmas Markets last year and had a great time, I would say there's lots of things to buy and lots of great atmosphere!
If you normally like buying things typically sold at a Christmas market then I think you may struggle, as I found lots of things very pretty, and especially if it's a shopping trip. Admittedly I didn't buy much because I don't buy much at Christmas market stalls anyway and I was going more for the experience - a couple of little bits, hand-decorated bauble, and kept one of the small gluwein mugs they serve the wine in (you pay a small deposit for the mug which I forfeited), and my luggage was also quite small (but not tiny) at around 60x35x20.
But there plenty of food, drink, atmosphere and even an ice rink for the experience. There are several separate markets in the city, so that multiplies the amount of choice you have, but they do sell similar stuff. Someone mentioned Angel Market/Neumarkt and this was my favourite the atmosphere was wonderful.
To add to the space saving tips, not sure how long you're going for but something we did was stayed in an AirBnB with a washing machine. We brought enough clothes/smalls for 4 of the 7 days, then washed all the clothes from days 1-3 on day 4, ready for days 5-7. This halves the clothes you need to bring, and makes it easier to wear layers of clothes on the way home if you want to increase bag space. Hotels sometimes will wash clothes or there will be launderettes in the city. Also trousers and jumpers take up so much space, tricky to stick to one of each but if you could I would!
Sorry for the long reply, I hope you have a great time!