I think FFXIV has a hard cap of around ~350 per zone, but you get some silly processing outcomes when everyone is in the same area (entities or attacks not being rendered, area of effect attacks randomly only hitting a portion of people within the target zone, etc).
The funny thing is that the maximum number of people on the screen before performance issues really hasn't improved much in MMOs in 16+ years.
They're probably pumping up the graphical effects and maintaining a stasis there. But there are also hard caps to how much data or how many position updates you want to be sending in packets before perceived latency degrades too.
FFXI in particular had a famous meme "PS2 limitations" where the game was being held back technically due to supporting the older platform, not to mention it was built with dial up internet in mind and a very low update rate. Many MMOs in general want to cast a wide net and will rarely improve to the point where players with older systems can't join in. That's for the sequel!
You are right, definition of MMO is stretched quite a bit when you have such limitations. One could argue that counter strike is an MMO because you thousands of players are playing on same universe (I guess gun skins are the only real progress of the game :) ) and each server is an instance. I think calling something an MMO mostly depends on how well it is hiding that it is not really a MMO
350 sounds quite impressive. Looks like eve online handled 2,670 at some point: https://en.wikipedia.org/wiki/Bloodbath_of_B-R5RB . eve online slowdowns the server to a crawl when there are such large scale battles though
In practice it wasn't utterly horrible to play this way, it was just very surreal to be running around engaging in combat with name-plates floating in the void.
But, that method is difficult to get right in Unreal Engine and impossible to do with Unity. That's why you only see it in high end titles like Battlefield but not in any indie MMORPG.