@aral The limits are set by Mastodon https://github.com/tootsuite/mastodon/blob/master/app/models/media_attachment.rb#L153-L157
I believe the reasoning for this is for one instance not allow 1GB video and another 5MB. Besides creating "special" instances it also would not fully federate between an instance where large videos are allowed and an instance with small videos.
This way every Mastodon instance follows the same limits (as long as the admin didn't hardcode a change to those values).
@aral Obviously, the cost of allowing concurrent streaming of large videos is high and would increase the cost for someone running a Mastodon instance.
I do think these limits make sense. Not sure if the values are ideal but there should be a small limit to make possible running a Mastodon instance on a low cost set up.