I am currently working on a concept for my first custom world. I have been reading tutorials, watching videos, etc. to get acquainted with CAW while I wait for my PC to get shipped to my house (currently on a Mac and at school so my desktop is 250 miles away). I've yet to use CAW myself and I have had trouble finding an answer to the question I am having. I have found that worlds can be between 256x256 and 2048x2048 but have never found anything that says if this means a grid of 2048 in game squares or not. I feel like it is, but am not sure and this would be quite useful knowledge to have while planning out my city before I am actually able to download and install CAW.

As an aside, I have also heard that there is a limit to the number of lots that can be placed in a world. But then I have heard that that is untrue. Is there any limit to the number of lots one can place in a world?

Thanks in advance for any help with these questions.

I would like to say that those numbers represent ingame squares. I'm not sure though, cause I have never really thought about it. :P

Best way to see how big they are really, is for you to get caw, then open up different sizes of flat maps to see how big they are. Tiny map is 256x256, one chunk in caw. Small world 512x512, it can hold 4 tiny maps/has 4 chunks. Medium map is 1024x1024 and it can hold 16 tiny maps/has 16 chunks. Large map is 2048x2048 and it can hold 64 tiny maps/has 64 chunks. Is quite big :P

I just woke up, so my maths may be off, lol.

Then your other question - amount of lots.
There is no real limit on how many lots you can place, at least I have not hit a limit, but the more you have lots, the more it effects game play.

Maps must be of X*256byZ*256 in size where X and Z are ints the premade height-maps CAW comes with are all 256by256, 512by512, 1024by1024 or 2048by2048. In game lots are 1 to 1 with the map size so one in game tile is the same as one CAW Tile. Lots can't be larger then 64by64. MTS asks that all lots are i*5 by j*5 where both i and j are ints. You also need a 1 or maybe 2 tile gap in between lots.

There is no known limit on number of lots but you should try to keep it low more lot means a slower game.

While there is no theoretical limit to the number of lots, there is a practical limit. You really should avoid placing more than 150 lots. But I have been guilty of placing more. A big clue is the fact that no EA world has more than 100 lots.

There are worlds with 300 or more lots. One, has over 700 lots. They are unplayable. Most gamers can't even load them. The lag can be horrible. Sims can get stuck even on empty lots. Getting stuck equals lag.

You really need to think through the lots you place. If you assume that 150 sims is about the maximum the game can handle, and that the average house is home for three sims, then you need 50 homes. You probably want one of each of the major rabbit holes. Everything else is window dressing.

As far as world sizes, as I understand it, each pixel in your height map contains the data for each square in the world.

It is true that a lot of lots effect the game play, like I already mentioned above, but what is more important is the routing. Lets take a few examples.

A huge(2048) world with 150 lots and no attention payed to the routing = most likely very laggy world.
A huge(2048) world with 50 lots and a lot of world objects, no attention payed to the routing = most likely a very laggy world.
A big(1024) world with 50 lots and no attention payed to the routing = most likely a very laggy world.
A huge(2048) world with 150 lots and routing done with care = most likely very nicely running world without lag.

So before you go setting any limits on how many lots there can be, plan your routing and do it with care. If there are spots that NPC's can spawn in and not move elsewhere, you will have lag. Not because you have too many lots.

I actually agree with your analysis. However, the operative concept is planning the routing with care.

A creator who builds a world with 50 lots is more likely to be more careful with the routing than a creator who builds a world with 500 lots.

That's simply because time is limited. Someone who is building 500 lots is going to spend their time trying to fill those 500 lots, rather than working on the routing. Or they will simply download many of those lots from here and other sites -- and that is just a grab bag about what you will get.

There seems to be a general consensus that lots can cause lag. This is particularly true if cheats like the move objectcheat are used with the lot.

So it seems that a world with many lots is more likely to introduce routing issues than a world with fewer lots. It's just the law of averages at work. Someone is more likely to mess up the routing with every lot which is added.

Is there a guide as how to build a world that would happily hold 200 lots [mostly small] plus the rabbit holes? I am trying to make a hood for self sims and have at least 70 individual households that I want to place. I guess this is why I haven't been able to find a custom world with as many houses as I would like.
I made a large island with no route painting - is this a no no? Obviously steering clear of too many effects would be an important thing.

As important as the number of lots, is what is on the lot. For example E/A suggest lots have no more then 6 types of plants on a lot. When I first started with CAW I would down load lots for my world. I quickly learn some the best loting house with lots of rooms, lights, and plants where cpu hogs. The best lots do the most with the least.