MipMap
MipMaps are downscaled versions (by powers of two) of a Texture that are automatically created if you select Create MipMaps when importing a texture.
The engine uses MipMaps to reduce jitter on textured surfaces when they're viewed from a distance; this process is called [bilinear filtering]?. When drawing a brush surface on the screen, the engine selects the MipMap that fits best; in fact, different parts of the surface can be textured with different MipMaps. Blending multiple MipMaps is called [trilinear filtering]?.
While the Unreal engine supports Textures up to sizes beyond 256x256, some (older) video hardware can't go higher than that. In order to accommodate that, the engine then simply selects the largest MipMap the hardware can handle and displays that instead. So, feel free to use large textures, but if you do, always create MipMaps for them.
ScriptedTextures, FireTextures and other Dynamic Textures have in principle no MipMaps and thus are restricted to 256x256 pixels. MipMaps also aren't used on meshes, so the same restriction applies for them as well.
inio: This node would more appropriately be called [MIP Map]?. MIP is an acronym standing for "multum in parvo", referring to the fact that it's many representations of the same or similar object. Also, this page needs to be update for 2003.
Legal: It's always been called MipMap and is called MipMap in UED as well, so: No! 
Mosquito Isn't this pretty much the same UT2003? I guess you don't need to worry about texture sizes over 256 X 256 for clienttexture?s (the video camera stuff) and Dynamic Textures. 
