very shortly, Dynamics AX, Credit Limit defines a number in your company currency, which must not exceed, while a customer of yours is buying from you.
For each individual customer you set up this limit, on customer master.
Further, there are different options in AX, such as if the credit limit exceeds/over, just give a warning, throw an error and do not allow to process Sales.
For each individual customer, you also do have the option to disable Credit Limit check, i.e. if you want any customer to do free trading with you , without any limitation of numbers/amounts, you can achieve this.