The terminator code limit relates to the number of times an encryption key can be passed on. For example, if the terminator code limit has been set to 0, then the person with whom you are sharing an encryption key will only be able to use it themselves and will not be able to pass it on to any other parties.

However, if the terminator code has been set to 3, when you share your encryption key with someone, they can then share your key with someone else, who in turn can share it with someone else and then that person can also share it with someone else. Ultimately, you are allowing the key to be sent on to three other people in addition to the original person with whom you have shared it!