First, I must note that X-Plane's mesh is adaptive - the triangles are not arranged in a grid, but rather they're arranged to maximize the quality of the mesh with minimal triangle count, while preserving the outlines of water bodies and airports. These pictures show a dynamic mesh fit to a section of the grand canyon (both with and without the shaded DEM for reference):
Second, the actual maximum mesh density is almost certainly limited by system resource constraints. The maximum spatial resolution in a DSF is about 0.6 millionths of a foot. You're going to exceed the maximum number of vertices, or much more likely, the maximum amount of available memory in X-Plane long before you have a grid at that resolution.
(That doesn't meant that resolution isn't usable - remember, the idea of the adaptive mesh is to have very high densities in very improtant places, but not everywhere.)
But in practice this is all moot if you don't code your DSFs by hand - the question that really matters is: what is the highest density mesh that you can use with the current scenery tools.
Until recently, MeshTool was limited to a 1201x1201 (90 meter) input DEM. The input DEM is a simple grid, and the finished DEM is never higher resolution than the input. So until now, it would have been just about impossible to make a really high res mesh, even if X-Plane could handle it.
The most recent changes to MeshTool fix this - MeshTool can now handle a 10801 x 10801 (10 meter) input DEM, which X-Plane should be okay with as well.
This new version will hopefully go into beta relatively soon.