I agree with not imposing arbitrary limits. The point was simply to keep the text as short as possible. For example, anything with a Creative Commons license can be described in at most eleven characters: the longest and most restrictive version is "CC BY-NC-ND". When you see those eleven characters you know exactly what the terms are for that work, without reading the full license text on each occasion.

I doubt we could compress all standard contract terms down to that length, but I do think most could be written in 1KB—or perhaps one printed page, double-spaced with decent margins—if we're only spelling out the truly unique parts.