This is the error message I received when trying to assign a ListItem (Word Document), Limited Access permission.

To get a grip on this, first take a look at the following table. The table illustrates a list of all the Permission Level in Windows SharePoint Services 3.0

PERMISSION LEVEL	DESCRIPTION
Full Control	This permission level contains all permissions. Assigned to the Site name Owners SharePoint group, by default. This permission level cannot be customized or deleted.
Design	Can create lists and document libraries, edit pages and apply themes, borders, and style sheets in the Web site. Not assigned to any SharePoint group, by default.
Contribute	Can add, edit, and delete items in existing lists and document libraries. Assigned to the Site name Members SharePoint group, by default.
Read	Read-only access to the Web site. Users and SharePoint groups with this permission level can view items and pages, open items, and documents. Assigned to the Site name Visitors SharePoint group, by default.
Limited Access	The Limited Access permission level is designed to be combined with fine-grained permissions to give users access to a specific list, document library, item, or document, without giving them access to the entire site. However, to access a list or library, for example, a user must have permission to open the parent Web site and read shared data such as the theme and navigation bars of the Web site. The Limited Access permission level cannot be customized or deleted. NOTE You cannot assign this permission level to users or SharePoint groups. Instead, Windows SharePoint Services 3.0 automatically assigns this permission level to users and SharePoint groups when you grant them access to an object on your site that requires that they have access to a higher level object on which they do not have permissions. For example, if you grant users access to an item in a list and they do not have access to the list itself, Windows SharePoint Services 3.0 automatically grants them Limited Access on the list, and also the site, if needed.

Now, I was trying to assign, from C# code, using Client Object Model, various Roles, to a user, like,

• Read-Only,
• Editor,
• Contributor,
• Administrator, &
• Limited Access.

As it turns out, this permission level, Limited Access, is for SharePoint’s internal use only. So basically, we don’t have to be bothered about this.

There is a complete article about this on MSDN,  http://office.microsoft.com/en-us/windows-sharepoint-services-help/permission-levels-and-permissions-HA010100149.aspx