The Credit Limit on the Customer record is the highest amount that you are allowing the Customer to have when creating Invoices. By setting it to 0.00, essentially you are not allowing the Customer to have any Invoice, because of course, a normal Invoice will have a transaction amount that is more than 0.00. You are not able to save the Invoice for that Customer considering that you have enforced holds for customer credit limit handling.
On the other hand, you are correct in your understanding of Days Overdue for Warning/Hold preference. When you have unpaid Invoices that are overdue at or more than the days that you have set in this preference, you will not be able to save a new Invoice for the Customer, unless the customer pays for the overdue invoice.
For context, consider the scenario below.
In the Customer record, you have set the Credit Limit to 100. Then in your Accounting Preferences, you have set Enforce Holds for Customer Credit Limit Handling and 30 in your Days Overdue for Warning/Hold.
For this Customer, you are attempting to create an Invoice with a transaction amount of 101. You will not be able to save the Invoice because 101 is more than the customer’s credit limit of 100. If you have set this to 100 or less, you will be able to save the Invoice. Note that all the unpaid Invoice amounts will add up in calculating the credit limits and if the total will be more than 100, you will no longer be able to save an Invoice for the customer unless they pay.
Also, suppose that for this Customer, you have an existing Invoice with an amount less than 100 that is unpaid for more than 30 days. You will no longer be able to create a new Invoice for the customer unless they pay, even when the unpaid invoice amount is less than 100.
In conclusion, the Credit Limit in the Customer record controls the highest amount that you are allowing the Customer for their unpaid Invoice, over which they will no longer be allowed to have a new Invoice until they pay. The Days Overdue for Warning/Hold on the other hand controls the maximum number of days that you are allowing the Customer to have unpaid Invoices – if they surpass the maximum number of days without paying, they will no longer be allowed to have a new Invoice until they pay.