Not the Doppler effect, as that only applies to moving objects, but instead the inverse square law, where the energy of the sound wave decreases by the square of the distance from the origin, since it spreads in a sphere with the energy being spread across the surface of the sphere, resulting in a very quick dropoff in the loudness.
Being able to handle it, and being able to handle it efficiently enough are two very distinct things. The hash method might be able to handle long strings, but it might take several seconds/minutes to process them, slowing down the application significantly. Imagine a malicious user being able to set a password with millions (or billions!) of characters.
Therefore, restricting it to a small, but still sufficiently big, number of characters might help prevent DoS-attacks without any notable reduction in security for regular users.