Try Star Wars Rougue Squadron III, and you will understand what it means to fly in "enclosed area".
HECK, I seriously hate that "feature", it's so damn annoying when you finally get the feeling of the fierce dogfight with skilled friend...the "automatic turnaround system" ruins it all !!!
In the Stars Wars - Shadow of Empire for N64 it's like that, yes it's a know "feature" of SW games.....
Anyway, about the distant limit, it also could be used to warn the player about entering 3D-planet's "atmosphere", IE being too close to planet/sun...I think the same warning system was used in Freelancer.
I am replacing and adding 3D Planets and Spherical Moons to Sol: A History, but there are some non-spherical models exceptions which I can support (Deimos and Phobos). That would just be a Flag in FRED if distance less than then you calculate the distance from the planet where the gravity field start, so there is no need for such an imposed limit.
Not sure if it is/was 700.000 meters, I rather think something about a cube with a side length of 150.000 meters. However, for a good autopilot-simulation I make the navpoints at least 50.000 klicks apart from each other, rather more if only fast fighters acompany you. Still, the newer fredbuilds act really strange now
It's much more than that in the SCP, I have created a Moon model at real scale about 3500 KM or so in size, and it could travel even to distances of 400,000,000 or so with no limits, and the collision data was totally OK.
It's some limitation bothering in the code, it doesn't make sense why even all the other 99 Ships can be a year light from you, and you can't even move 700,000 from your initial point, after 700,000 or so the 3 Warnings start and then you blow.