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The 260KB size refers to the internal files. Older versions of Adobe epub reader code couldn't handle these properly. So, a novel gets split into smaller internal files, usually one file per chapter. And long chapters need to be split at some other point.
For newer epub readers, this is not as important. They seem to handle them OK, but it can cause performance problems. As a test, I edited a book I with 30 chapters into a single file. This was over 1MB in size. On my Kobo Glo, it work fined. But, turning the page became slower as I went through it. Towards the end it was taking close to 30 seconds.
I don't have a Kindle but my understanding is that they don't have a problem like this.
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