Another commenter mentioned the memory and CPU limits, but in addition to that, there's a limit to how much code (65536 characters, or 8192 "tokens") you can write and how much assets fit in one 'cart' (sprites, map, sounds, music).
Celeste is another famous game, they're using the maximum capacity that fits in a single Pico-8 "cart": https://www.lexaloffle.com/bbs/?tid=2145 (I think I finished it below 2 minutes once? Definitely below 3. Edit: just over 8 minutes, I've gone rusty, lol)
So, it's a virtual console that's sympathetic to physical hardware. Of course this is just a tiny general purpose computer, not some custom PICO8 hardware. But the constraints of the fantasy console means that the creations will work in terms of processing, memory, resolution, input etc on something much weaker than a desktop PC.
