It has nothing to do with the fuel cost. This is what ryanair's website says about oversized luggage: "Passengers who bring an oversize bag (over 55x40x20cm) to the boarding gate will either have their bag refused or, where available, placed in the hold of the aircraft for a fee of £/€ 70.00 - £/€ 75.00."
Ryanair earns every time they identify an oversized bag at the boarding gate. They just share some of that money with their staff.
How does size of an item in the cabin correspond with excess fuel? In particular, how do large items cause excess fuel if they are in the cabin, but not the hold?
Remember that the mass of something is the same if it is in the hold or in the cabin, and just because something is large doesn't mean it necessarily has a large mass.
Only if the staff is fair. Frontier in America pays their staff $10 per bag identified and when they first started, some gate agents went wild trying to get that $10. There were videos of bags that cleanly fit in the sizer but passengers were being charged and threatened with being blocked from the flight if they didn't pay quickly.
Ryanair earns every time they identify an oversized bag at the boarding gate. They just share some of that money with their staff.