From the game's encyclopedia
The Vassal Limit determines how many Direct Vassals you can legally have (excluding Barony-tier vassals).
Although you can go above your Vassal Limit, doing so will lower the Taxes and Levies your vassals provide, and you may be better off Transferring some vassals to stay below the limit.
The game's text for patch 1.20.1.2. Words in blue are entries of the encyclopedia: hover one to read it, as in the game.
Vassal Limit is an entry of Crusader Kings III's in-game encyclopedia. The game explains it: "The Vassal Limit determines how many Direct Vassals you can legally have (excluding Barony-tier vassals)." It is part of Vassal. Patch 1.20.1.2, from game/common/game_concepts/00_game_concepts.txt and game/localization/english/game_concepts_l_english.yml.
Source: game/common/game_concepts/00_game_concepts.txt, game/localization/english/game_concepts_l_english.yml and the English localisation, Crusader Kings III 1.20.1.2.