The text in a datagrid display and in the ensuing report will truncate to 255 characters, but if you use the export option, the entire contents will export.

The display was intended for a quick review of content or to aid in filtering records.  Displaying over 255 characters results in too much of the screen being taken up with one cell.  Since there is a limit to the number of characters you can display in a grid because of underlying programming limitations, fields are truncated at 255.

The report was designed to mimic the display and once again was intended to  display short answer values.  Most of the time you don't want cell contents filling up significant portions of a printed report.

However, it is necessary to pull the entire contents of various fields out for use in merge documents and other analysis and thus the entire cell content, including the carriage returns can be exported and used in merge letters.  There is no character limitation.