Why SQL Server has 900 byte index size limit
From Microsoft SQL Server 2008 Internals:


  In fact, improving scalability is the primary reason for the limit to an index key of 900 bytes, or 16 columns, whichever comes first.


At 900 bytes per key, you can have a maximum of 8 index entries per page.  As you decrease the maximum number of index entries per page, you vastly increase the number of levels required to store any given index.  The smaller the key size, the more efficient the index, since it requires fewer pages of data.

As of SQL Server 2016, the maximum byte size for non-clustered indexes has been increased to 1,700 bytes, and 32 columns.