Why have a population limit at all?
1) Performance. All of those little units have to be drawn on the screen, their stats kept track of, their position on the map kept track of, and they have to path over a complex environment. In multiplayer all this info has to be shared over the Internet.
2) Human bandwidth. Believe it or not, some players just don't have managing 1000s of units. They lose track of them, can't task them all, or can't tell what's going on. At some point your whole army won't fit on a screen, which makes understanding who is winning a battle that takes up multiple screens really hard to understand.
3) Balance. We have to pick a number to balance the game. It might seem like an infinite pop cap would be self-correcting, but when someone has an economy of 600 villagers, economic decisions basically don't exist -- you never make a choice between quanity and quality for instance, because you can afford anything.
4) Connection. What I mean by that is that we want every soldier to feel special. We want it to suck (a little) when a soldier dies. It's easier to care about each member of an army of 50 soldiers, each one symbolic of hard-earned resources, than an army of 50,000 soldiers. We want it to be a little sad when that cavalry you had since the beginning of the game finally dies. It makes combat feel like the stakes are higher and gives you an emotional connection to what's happening on screen.
Now, what are we doing with the pop cap of AOE3?
1) It will be higher than AOK, but not Rome: Total War high. That's just a different kind of game.
2) It won't use an AOM system, where you have to steal pop from the enemy in order to have a larger army. (Though there are some fun ways to "cheat" above the pop cap that we can't talk about yet.)
3) We'll almost certainly make you pay multiple pop slots for some soldiers. We learned on AOK with Elephants and Cataphracts that it just isn't fair to require you to field 10 soldiers of one type to beat 1 soldier of another type. If the pop cap is 100, and I have 100 Elephants and you need 1000 Pike to counter that, I guess it's just gg. The other solution is to make Elephants about as strong as Pike, but where's the fun in that?
4) We don't know what the pop cap is yet. We keep adjusting it all the time. I will tell you some of our guys think the armies are too large already.