So I've been looking at the Schlieffen Plan of WWI, and that may have meant France ceding to Germany if it the latter was successful. So why didn't this happen 40 years earlier when Prussia did overtake Paris instead of annexing the relatively small territory of Alsace-Lorraine?
It's much harder to answer why something didn't happen in history than why something did. Regardless, here is some context that may help you:
Even in the Schlieffen Plan's best case scenario, France would not be annexed in whole. Instead, the post-war plans called for dismantling or occupation of all French border forts and seizure of the Briey-Longwy iron mines which accounted for 90% of French iron. It should be noted these mines were not known until after the Franco-Prussian War and that the seizure of Alsace-Lorraine took about all of Frances iron and coal production until they were discovered later.
In the context of 1871 why they didn't take more is because they were tentatively trying to operate under the pretense of freeing and uniting German speaking peoples. That's their reason for ultimately taking Alsace-Lorraine -- it had a majority German speaking population.
It would have drawn the ire of all the other neighboring Great Powers. The entire process of German unification had Prussia goose stepping around the wrath of the other Great Powers like Russia and Great Britain especially. Part of the reason they got away with it was goading France into being the one to declare war so that it could be 'defensive'. If they were to attempt to occupy the entirety of France, their farce would be exposed and the other Great Powers would not have stood by idly. Much like Napoleon, they eventually would have fell under the constant pressure of Russian, British, and likely Austrian and Bavarian resistance from all corners.
Real life isn't a video game. You don't just annex entire countries like that. In the context of the Franco-Prussian War, even after Paris was surrounded and the almost the entirety of the French army was captured or killed, hundreds of thousands of Frenchmen rose up and terrorized the German rear guard. The Prussian state did not have the means to subdue such a massive and rebellious population over such a massive geographic area, even with the rest of Germany united. Doubly so considering it was an entirely new state that had to be domestically consolidated, both militarily and otherwise; they had no means to enforce that kind of foreign occupation efficiently when they had a slew of domestic issues already at their gate.
States act in interest of themselves, for their benefit. What benefit would occupying France have gained? Alsace-Lorraine was, again, at the time, almost the entirety of their iron and coal production. They had such crippling war indemnities their economy was expected to collapse, thus removing them as a Great Power threat. As far as 1871 goes, France was a non-issue after the Treaty of Frankfurt. Britain didn't give two hoots about the continent as long as one power didn't get hegemonic control and Russia was cordial to Prussia and later Germany at the time, and more importantly had zero reason to align with France at the time. France would be broke, isolated, and industrially destitute.
It was only the discovery of the Briey-Longwy-Thionville iron mines that set France back on track to economic recovery and basically a fluke that they did not dissolve into constant regime changes and revolution like was common for the past 50 years. These are two things Willhelm I and Bismark could not have meaningfully predicted. Occupying further territory would have been twisting the blade in the wound for little reward at the time but bringing on a much bigger consequence, notably, the entirety of Europe likely joining in coalition against her.
Michael Howard's The Franco Prussian War is a good work on the war itself.
TL;DR:
She didn't have the means to do so. It would have gained little but brought the rest of Europe into coalition against herself. The people living there would not have quite agreed with that and would have fought back. That's not how politics work, fortunately, because you can't just take thousands of square miles without consequence.
As moderns (especially Americans) we tend to be taken in by the idea that France is this peaceful and even wimpy power. But in the mid-1800s that idea would have been laughable: France was the most militarily dominant European nation for centuries and Napoleon was only defeated through the cooperation of many strong armies working together. Thus Prussia was defeating France under the auspices of humiliating a violent and aggressive power who would possibly throw Europe into war once again if allowed to regain her power. But if they had just annexed France (which would have been extremely hard to do in the long run) then any pretense of being the benign power would have been gone. This is just one aspect of historical scene that I think is important, other replies have gone into more detail.
Read this comment first, but I think I can go into the third point on diplomacy a little more.
The diplomatic situation of Germany made it inadvisable in 1871 as well. Bismarck intended to win the war to secure German unification on his terms, as /u/elos suggested. Because Germany was surrounded by three other Powers (AH, Russia, France) and cut off in the North Sea by Britain, it could not afford to act too aggressively for fear of having a combination of the other powers gang up on it. Hence the intricate series of alliances crafted by Bismarck shortly thereafter to maintain good relations with Russia and AH and an openness to improving relations to France.
The broader point is that those 40 years between 1871 and 1914 mattered, because they contain a shift in the diplomatic landscape. By 1914, Germany had failed to maintain its alliance with Russia, who had allied with France instead, creating the two-front scenario Bismarck had feared. Germany also antagonized Britain through its naval program. Its proximity in the North Sea made it too threatening to British security (an island, after all) to overlook. Germany was effectively left with only AH as an ally by then; very different than in the Franco-Prussian war, where official French belligerence had drawn foreign sympathy.
This is mostly from memory, but my knowledge is drawn from: Grenville, J. A. S. Europe Reshaped, 1848-1878. Hassocks: Harvester Press, 1976. Pflanze, Otto. Bismarck and the Development of Germany. Vol. 1. Princeton: Princeton University Press, 1963. Rich, Norman. Great Power Diplomacy, 1814-1914. New York: McGraw Hill, 1992. Taylor, A. J. P. The Struggle for Mastery in Europe, 1848-1918. Oxford: Clarendon Press, 1957. Wetzal, David. A Duel of Giants: Bismarck, Napoleon III, and the Origins of the Franco-Prussian War. Madison: University of Wisconsin Press, 2001.