This post is going to be fairly system specific to Mutants and Masterminds, but the topic itself is not unique to the super hero genre of RPGs - or, at least, doesn't have to be. That said, this is also going to be a bit rambly at times, as I've had a lot of conflicting thoughts on the subject over the last couple of days. As always, feel free to chime in with your own $0.02 or more in the comments.
What Are Power Level Limits
Before we can talk about the good and bad of power level limits, I need to define what I am speaking about. For those who don't know, in the system Mutants and Masterminds, players build their character with a point buy system. However, GMs control the 'feel' and 'scale' of the game they are going for by assigning a power level for the group - or for each individual character. The default is a power level 10 character, which is about the average level of a Marvel character, particularly from a team book. DC, on the other hand, tends to stray closer to the power level 14-16 range.
Now, your power level does two things. First, it determines how many points you have to start with. Second, it puts a cap on combat relevant stats such as how much damage you can do, what your to hit bonus is, how hard you are to hit, and how resilient you are from damage. If they're willing to spend the points (about 60 points iirc) a power level 10 character could have 30 ranks of flight and be going at near light speed all the time (the flash has a speed of 20, for reference.) However, that same character can't do more than 20 damage with a hit, and to be able to do that much they would not be able to have any bonus what so ever to their hit rolls.
So, basically, things that are directly relevant to combat (damage, hitting) are capped. Things that aren't (how fast you go from A to B) are not. This is done to help balance characters, and to help the GM with making challenging encounters. After all, it isn't often that someone will trade in all of their To Hit bonus for damage, and the book even warns GMs about issues that can come with that. Get it? Got it? Good.
Now, there is a lot of good to this system. For one, it helps keep a group of characters about the same combat-effect wise, unless someone has made a willing choice to not be that. Players who want to be a bit more advanced can trade down their damage for more To Hit, or their To Hit for more damage - and the same with defense - but it also gives new players an idea of what to go for. M&M doesn't hide that, much like the superhero comics it mimics, it is all about the action, and the limits give a handy guide. Got a new player and he isn't sure how to build properly? You can start off by just putting him near the caps for attack and damage, and at least you know he'll be effective in a fight.
The hard caps also prevent players from overspecializing (which you may not think is a good thing, that's fine.) because they can't just dump all their points into one super-mega attack. At least, not easily. Which means that they'll have points for skills, advantages, and some other side things. Sure, the character will still be mostly about the combat. But it'll do more than have a sure-hit megaton punch that 1 hit KOs anything and everything you throw at him.
On the bad things, the limits are hard caps, and like most D20 based games the game seems to assume that most players will be at the caps with at least their primary attack. This means that doing "creative" superhero things like grabbing a lightpost out of the ground, or hitting someone with a car, do no extra damage. This seems like a really bad thing to me when you consider that it means a player either needs to leave room to the gap for those things, or have their ingenuity severely curtailed.
I'm also not sure where I start on the caps as far as stopping players from doing things. I mean, if someone wants to drop all their points into one attack that is on them. Generally speaking, the phrase "over specialize and you breed in weakness" is true for point buy games. Not that the limits have to go, but maybe as a suggestion instead of a hard rule?
Mostly, I wish that they had left room in for the super hero thing of using the environment for more damage.
Overall I think the power level limits work, especially in their primary functions of controlling the 'feel/scope' of the game, and making it easier for the GM to set up challenges for a group. After all, you don't often see normal members of the X-Men flying at Mach 36 and punching planets through suns, and a GM running a Power Level 10 game is probably looking for the level you normally find in X-Men comics.
Still, it isn't perfect. What do you think?