The maximum size of the watermark string is governed by your configuration options and by the complexity of the target assembly. In general, bigger strings fit in bigger assemblies. Dotfuscator uses character encodings, called character maps, to minimize the number of bits required to encode a character; a small character encoding allows you to create a longer watermark string for a given assembly.
In addition, the encryption algorithm has a fixed block size. If you choose to encrypt the watermark string, the maximum length of your watermark string may be smaller than it is without encryption.
It is not possible for Dotfuscator to predict the maximum watermark string length until the output assemblies have been generated. You can tell Dotfuscator what to do during a build when your watermark string will not fit in the output assembly. The default setting truncates the string so it fits and prints a warning message to the output window. You can also tell Dotfuscator to stop the build with an error. In both cases, the message indicates the maximum watermark size.