What is system partition? How its size is fixed? Can it be resized?
Who or how it was fixed as 190MB? 
  


The manufacturers decided that. They probably expected that that size would be sufficient during the expected time they will continue official support for the phone.


  
  Can the size of partition be increased?
  


If you're rooted and installed custom boot loader, yes partitions can be resized, although not in a way that will satisfy everyone since it takes space away from internal memory and many people also have exhausted their internal space; it involves a lot of work to test and debug and since P500 has very little internal memory as well, at some point developers had to decide that it's just not worth the effort.


  I tried a tool but did not help. After all the process completed without any errors, I still see no change in the size. Are there any other ways to do it?


What did you try?


  
  Hephappy, a ROM developer had commented in XDA page as "No space: P500 has 190MB for system partition." and hence he withdraws the plan of developing JB ROM for P500. Is it then a hardware limitation?
  


Pretty much. All newer phones comes with much larger internal memory, you should consider an upgrade if you really wanted JB.