I actually did 3 seconds of research instead of relying on my memory. Seems like there was a capacity limit to the login/ chat server, but didn't see any mention of the actual server having hard caps.
Some discussion was
here.
So basically when all servers were down there was a limit to how many could sit at the server screen and get into world the second servers were up.
Guessing people are remembering a capacity message after typing in password, not from clicking on their server.
Other discussion
here.