Historically, there was a sort of sliding scale between Absolute Monarchy and Constitutional Monarchy, with the monarch's powers slowly being chipped away over the centuries. Queen Victoria had rather more say in things than our current Queen (who has almost none, really), and her predecessors more yet.
That slow decline on Monarchistic power probably first became noticeable with Magna Carta (http://en.wikipedia.org/wiki/Magna_Carta) in 1215, which theoretically (and along with a few other things that were going on around that time) ended the monarch as all-powerful despot. That'd make a great World Wonder, btw. (Perhaps reducing anarchy time for some sorts of civics? Or improving noble specialists.)
The Monarchs during Britain's Imperial period were Emperors in both title and fact. But the conquered variety of vassalage does probably represent that well enough.
I'm currently playing a game on Emperor level, and have discovered that the AIs seem completely immune to revolutions, and thus also completely unconcerned with city limitations. Bit of a shame, as I like a bit of churn, and revolutions usually stop the AIs from amassing ridiculously large numbers of cities early on. The Celts (on a different continent to me) are taking over the world with 38 cities right now (still in the Classic period), and no real instability. I suspect they only stopped getting bigger because they ran out of people to conquer over there. The game is a bit of a lost cause at this point, with them running off into the distance. I'm guessing they're avoiding revolutions because they have crazy numbers of town watchmen in every city, (and no money concerns at all at that difficulty level that would otherwise prevent having so many watchmen. They're sitting on about 50K gold at the moment.) and the built in stability points they provide are making revolutions implausible. Perhaps having Town Watchmen (and their policing promotion upgrades) reduce crime (which reduces instability in and of itself) AND reduce revolt chance makes them overpowered for their time period.
In addition, my nearer neighbours, who are also far bigger than I could risk being without bankruptcy or rebellion, are absolutely terrible at invading me, even though they have the technological edge from having so many cities. So many of their forces are town watchmen (which cannot attack, and aren't actually that great at defending after a while) that they just don't have the muscle to invade me properly, or defend against my counter-attacks. The AI seems to be following the logic that if 1 Town Watchman reduces revolution chance by 10%, then having 10 of them per city is a brilliant plan. Which it is, if you can afford it, until you want to fight someone with a proper army. Anyways, I suspect that Town Watchmen are at the core of several strange/annoying C2C issues.
Hmm, that might be a bit off-topic. I'll post it in the bug/issue forum.
The AI is not immune to the limits, they just have better modifiers than you do (when you are playing at Emperor) so they can exceed them by more and handle the results. It's not unlimited though by any means. You WILL see AIs break apart though REV later in the game.
It makes it much harder to dominate the early game (at higher difficulties) but you can still come from behind later. This is really necessary to make the higher difficulties actually harder, since the effect is to boost the AI economically and make it much more competitive for nearby territory. It's military ability still sucks, which is why com-from behind I still possible later.
If you check the AI logs you can see thing like what science rates, what costs and what incomes the AI has (as well as happiness etc.). You'll generally find the big ones are having to lower their science rates somewhat (they'll still have bigger totally than you mot likely until much later, but they are often running significantly reduced science rates to pay for their expansion)