The amount of karma you have controls if you can chat below a certain level and how many messages you can send in a certain interval. You'd want to look at the other chat rules to see those limits.
It goes up by 1 every KarmaUpdateIntervalMS you're logged in.
I don't see any way for it to decrease.
There is no limit, although if it happened to hit 4.2 billion it would roll over to 0.
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