How large of a hole can I fill with putty in cedar siding?
It will depend on the type of product being used to fill the hole - some are better suited to small holes while others can handle larger holes.  Products that don't (or resist) shrinking will be better for larger holes where the shrinking would be more noticable and might result in cracks.

Check out the products at your local home center and read the labels to find a product best suited to your needs.

As for taking size of the hole into consideration, both the diameter and depth are important to consider.  A long shallow scratch will be easier to fill than a smaller but deep hole.