How long should my System password be? In the early versions of Mac OS X, only the first 8 characters of any password was used. Later Apple increased that number.

A proper password system stores a hash not the actual password. In that case, a longer password/passphrase is generally better so as to increase the chance of a generating a hash value not already pre-calculated. I assume Apple is using this hash technique for authenticating system login users.

It Mavericks, what is the maximum number of characters in a passphrase used by Apple's user account login?
I tested passwords up to 480 characters (in OS X version 10.8.5) and it used all of them; around 480 the passwd command had a little trouble setting passwords, but it was slightly inconsistent, so I'm not sure if that's a real limit. I didn't test with the System Prefs interface, because it doesn't allow pasting passwords, and there's no way I'm typing something that long (twice!). Basically, it'll use as much as you can stand to type.