The limit is for all the powered-on VMs on a single host.
In my experience, it counts neither the provisioned nor the used space - I think you can get away with a slightly higher usage than the limit would allow you, if you don't touch some areas of the disk. It definitely does not count only the used space, and we have found that the provisioned space is a good approximation to calculate when we will hit the limit.
NFS and RDM are indeed unaffected by this limit.
AFAIK it most definitely exists in VMFS5 where it is arguably worse, since the block size must be 1MB. In VMFS3 you could use an 8MB block size and extend the limit x8.
If anyone has any info on when it would be fixed, I'd be happy to know...
