I don't remember exactly why, but I think there were some troublemakers in the earlier days of the site that would spam rep someone else to annoy them with rep notifs. Not certain, but I think I heard something like that as an explanation.
As far as I know there's always been a cap, but it was much, much higher than it is now. Then there were concerns that the currency was becoming bloated, as it were, so they lowered it. (Which accomplished nothing, IMHO, but that's neither here nor there.)
