If you have issues with images not posting consider using a 3rd party service to host your images instead of your Lemmy instance.
I just upload my images and videos to Catbox.moe and use the direct link it gives me to post my memes and videos I share. Also doing this with your images helps save server resources on the Lemmy servers.
Still that would be incredibly low for today's standards where images can weigh multiple megabytes compressed. I think 5-12 megabytes per image would be a reasonable limit.
I think the idea is to keep instance hosting down so as to minimise strain on the servers. Again, it probably does vary by instance. Reddit never used to host anything in the early days, that's what imgur was for.