2000 Item Limits for SharePoint Libraries
I continue to get a lot of questions regarding the document limits per document library. There is a lot of confusion here.
A lot of folks tell me things like "SharePoint can't store more than 2000 documents", "Why do I have to use folders inside of a document library". Keep in mind, that there is a big difference between content storage and view rendering. In other words, the 2000-item guideline per folder has nothing to do with storage limitations. It has everything to do with the performance associated with rendering the view of those items.
For a good discussion, go check out this article.
Below is a portion that I captured from the article that really tells a whole lot. The article is definitely worth reading.
Throughput differences between flat document library vs. document library with folders
Throughput for certain operations decreases as the number of items in a folder increases.
The following figure shows the difference in throughput between viewing all items in a document library with and without the effective use of folders, which is critical for scaling. As shown in the graph below, throughput performance degrades as the number of documents increases when flat library storage is used. The quickest drop in throughput occurs when the total number of documents is less than 2,000, from 151 RPS (at 200 documents) to 63 RPS (at 2,000 documents). At 4,000 documents, throughput decreases to about 13 RPS, or an overall throughput decrease of over 90% from an empty library.