I don't wanna say that's a silly question, but...it's difficult not to.
The item part is easy. Two reasons:
A) Item limitations reflect realism, albeit in a very unrealistic kinda way (makes sense, eh? hehe). You can't carry every item in the world, and it would be silly to assume you could.
B) Because it's limiting! It's more fun and leads to a better feeling of accomplishment when you have limitations and use them strategically.
The level parts. Two reasons:
A) Imbalance in the game becomes apparent when you get too high, that's the biggest one. That, and you can't expect an RPG to come out with an infinite amount of armors, nanos/spells, weapons, etc.
B) Because, just like the item part, it's limiting! You have something to strive for! And you know that once you get to that point you have achieved a finale of sorts, the goal of goals, the Maximum Levelus.
The Conclusion:
The entire point of an RPG (especially a combat-style one) is to set limitations on yourself/your character and then creatively working around those limitations to become successful and improve yourself.
It boils down to the Chain Reaction question, which is really what you asked...
If you really want to know why there are limits on levels and items, why not take it a step further? Why are there limits on hit points? Why do we even bother dieing? Why can't we destroy anything we attack? Why can't we all be gods?
Because it would be no fun at all. (Yes, I already know all the comedians responses to that one, you can hold off on it for now please).