first of all a expandable reservation is only used for vm reservations and memory overhead reservations, it has nothing to do with limits.
Even better, a limit overrules a reserveration and that includes expandable reservations.
A limit is a cap of physical resource usage, it does not relate to the memory configuration of a virtual machine.
When you set a limit on a resource pool, you set the limit on the resource pool level. If you place a virtual machine inside the resource pool, the virtual machine becomes the child of the resource pool. It must adhere to the rules of its parent, the resource pool. Because a VM memory configuration does not equal a reservation, you can place a virtual machine with 255GB in it. But it will not use more than 4GB of physical memory. In my example the virtual machine can use up to 4GB of physical memory and will balloon, compress and swap the rest of the 251 GB.
If more virtual machines are placed inside the virtual machine, they will share that limit, based upon their resource entitlement.
Frank Denneman
VCDX #29
frankdenneman.nl
co author of: vSphere 4.1 HA and DRS Technical Deepdive - out now on Amazon