I worked at a hotel many years ago while in school, and this is how it was then (though things have probably changed a little)
When you checked someone in, you had to place an authorization (or hold as some people are referring to here) on the guests card to ensure the card would cover all chages to the folio (guest account).
The amount was entirely up to the desk clerk, but the amount authorized would be entered into the system. Sometimes it would be $50 per day, sometimes $100 per day, it didn't matter, we usualy just picked a round number. For example a guest coming in for 4 nights @ $80 would mean $320 and I would typically choose to authorize for $600 or so.
Each day the system would print out a report for guests who were over or close to going over their authorized limit. The clerk(s) then had to go in and manually attempt additional re-authorizations for these guests which is a pain in the @#!. So, the clerks would typically be on the safe side and authorize the card for more than the guest would ever likely spend.
This became a problem if the guest had a credit card with a lower credit limit, or was approaching their max. I assume it is a big problem now with people using debit cards because it ties up "real" money rather than a credit line.
If a guest specifically asked for a low authorization amount then it was never a problem and always done as requested.
I think the highest I ever authorized for was $50k. There was a guest who walked in off the street and asked me how many rooms I could get him for a whole month. There had been some type of disaster and his construction company had received an emergency job in the area. We gave him a nice corporate rate and I swiped the card for $50k which was a rough estimate on what I thought it was going to cost them
The little terminal said "CALL AMEX" or something like that. I picked up the phone and they asked me what in the world I was doing - I explained it to them and they authorized it