They are referring to the clearance between the bit and the hole in the router base.

You can violate this if the bit is completely below the base (common in router table applications).

In many cases you can remove the plastic sub-base from the routers metal base to use larger bits if needed.

Yes, your idea is correct.

The major reason for that warning is so an operator does not use a bit that's diameter is too large for the particular router. Single speed routers often operate at 18,000 rpm. That speed is safe for bits that have a 1&1/2" diameter. The router manufacturer makes the base plate hole the largest diameter that the router can handle.

When bit diameters get wider, the speed at which they operate has to be lower, so centrifugal forces do not cause the bit to break. That is the reason for variable speed routers as well as higher horse power models. Basically, the bigger diameter the bit is, more horsepower and slower speeds are needed to operate the tool safely and effectively.

There is a way to vary the operating speed of single speed routers. That is with an external speed control device. The router cord plugs into the speed controller. Turning the speed controller knob changes the actual rpm of the router. That allows a router built for 1&1/2" bits or smaller to safely (when done correctly) run larger bits that are over 1&1/2" in diameter.

There is a tradeoff however. Remember I mentioned the routers for larger diameter bits have more horsepower?

Your single speed router has 1&1/2 to 1&3/4 HP. You may have a 2&1/4 HP model. The big routers have 3&1/4 to 3&1/2 HP. Bigger bits need more power to use. Using a really big diameter bit with a 1&3/4HP router can be done---with a speed controller, but you have to take much smaller cuts, and often even that does not work.

Buy a router book. Pat Warner(aka Routerman)has several books out, and Bill Hylton/Fred Matlack authored a good one.

"The router manufacturer makes the base plate hole the largest diameter that the router can handle. "

Not that I have noticed.

I have routers of the same make and capacity with and without variable speed.

The holes in the base are the same size despite the lowest speed on the variable being less than half the maximum speed for either.

A smaller hole provides more base contact for routing and there are router table inserts with multiple hole size inserts.

I think that before you use your router, you should go to a class or purchase a video that explaines the rudiments of using a router. 18,000 to 20,000rpm can do a lot of damage to you, your project and your shop, if you don't learn the correct way to use this tool. I know people who have lost fingers and worse because they did not know how to use the tool correctly.

The shape of the cutter in general also has an effect on how much power it takes to run it. Look at the two types of panel-raising bits, vertical and (old-style) horizontal. The horizontal bit takes less of a cut out toward the edge, (where torque is lower/speed is higher) but the new vertical panel raising bits take the most material where the speed is also the highest.
So, there's the tradeoff; a safer bit perhaps, but it needs more power.
Speed as I'm defining it here is rotational velocity, not RPM which is taken to be constant, but the further from the axis of rotation, the more ground the swing is covering, therefor it's "faster" at the tip than the center, which is not really moving at all.
I would never entertain the thought of using a large bit with a 1/4" shank. Even if it doesn't vibrate loose, it's still a poorer cut than the same profile in a 1/2" shank.
For everyday small routering tasks I use a porter cable 900 series, which I've had for like 15 years now. A few years ago I bought a Festool 1400-series variable speed electronic plunge router. It is just an amazing tool. You can't imagine the difference in smoothness between a garbage variety of router, like an old craftsman of 80's vintage, and a decent router. It can actually be a tranquil experience, as opposed to a scary noisy stress-fest.

Casey

"The shape of the cutter in general also has an effect on how much power it takes to run it."

Very true.

Shapers with 6 inch and even 8 inch cutters need a lot of horsepower and a lot fewer RPMs to do their job.

For almost all woodworking, the real thing you need to watch is feet per minute of cutting edge travel.

This works on every power wood cutting tool.

The problem is that it requires actual calculations, so it gets reduced to recommendations of router RPM as a function of router bit diameter.

The speed needed also changes with the material being cut.

Some woods are a real bear to deal with.
The window between a r9ugh cut from excess speed and a burn form to slow a speed can be narrow.
Cherry is one of these woods.

Feed it to fast and the cuts are rough, too slow and burning is a problem.

Hit the correct combination of cutter speed and wood feed rate and it works well.