iPod Video & Classic 32/64MB RAM Track Limitation
When running Apple's iPod OS, the iPod must be synced through iTunes. When synced, iTunes creates a database file of all the content synced from iTunes, with all content indexed so the iPod can load content onto system memory from the HDD smoothly and quickly.
There are no system monitoring tools available for the iPod while running iPod OS, so take this with a grain of salt.
Say an iPod with 32MB RAM is playing a 12MB 320KBps MP3 file, that 12MB MP3 is loaded onto system memory along with accompanying album artwork, lyrics, etc.
The iPod OS itself will likely be taking around 20%-30% of system memory just for operations sake, whether the iPod even has any music loaded onto it or not (this memory is crucial to the iPod's operation).
Remaining system memory is given to the database of content loaded onto the iPod through iTunes. This database is always loaded onto system memory so the iPod can quickly locate, read, and load content from the HDD onto system memory.
The more content indexed on this database, the larger the database file will be. When the database file is too big to be loaded onto system memory, iTunes refuses to add anymore music onto the iPod so that the iPod remains fully functional.
(the track limit can be from 10,000 to 30,000 depending on a user's library)
A 3rd party OS can be installed on the iPod which takes a different approach to managing system memory and the file system in general (i.e. Rockbox).
This allows the iPod to utilize it's entire HDD/SSD storage space up to 2TB (this is a limitation of FAT32 as a whole, not Rockbox itself).