Recently I made a directory with > 20,000 small mp3 files in it. Not all the files successfully copied across from my desktop computer and if I tried to add any more I received an error message similar to - 'Unable to create the file'. I assumed I had reached some sort of system limit, but I was just guessing. Samsung galaxy tab.
This, really, isn't an android question, it relates more to file systems.
The limitation is set by the file system. FAT32 can have 65,536 entries. Each file and subdirectory takes from two to thirteen entries, depending on the length of its name.
There is one entry that hold the Short (8.3) name of the file name. If the actual name doesn't fit that entry, then there will be one to twelve more entries, each of which holds 13 bytes of the full name.
The size of the file itself, doesn't have make a difference, unless the file is larger the 4GB, which is the maximum file size for a single file in FAT32.
You can read more on the FAT32 Spec if you wish here.