Font Rendering Issue in Visual Studio Code on CachyOS (Arch Linux family)

You have large gaps because a terminal requires a fixed-width font. Terminals are strictly grid-shaped; each line is a specific number of columns and each column is exactly the same width.

When you use a variable-width font (with narrow i and wide m and so on), the grid is adjusted to fit the widest character (usually ‘m’), and that of course leaves gaps around any characters that are narrower; whereas monospace or fixed-width fonts are designed to fit the grid nicely.

VSCode has a separate setting for the terminal font – set terminal.integrated.fontFamily to monospace or similar. (Then use programmingfonts.org to find some alternative monospace font that fits your style.)