PolarRaven shared the only "official" page for it that I could find. I don't think there is anything on the Wiki. I don't think it is meant to be anything other than a simple size restriction, so that you can't team up with more than 1/3rd of the continent.
What practically happens if you are in an alliance bloc within size limits, but which then outgrows it?
Anaris mentioned that there would be no GM intervention if an alliance "outgrows" it's bloc unless it becomes huge. So if you are at your alliance bloc limit and you take over another region, I do not believe you need to worry about giving up another region for it. If you get a huge influx of players, however, and your realm triples in size so that your alliance bloc is now half the continent, it might warrant investigation.
I think Anaris said he was going to try to make an appearance here today, so I will let him clarify that point if I am incorrect.
Are treaties and embassies and diplomatic pledges not captured by an alliance all illegal now?
Can you rephrase this question? I am not sure exactly what you are asking.
Are you asking if alliances trump treaties? They already do. If you sign a Mutual Defense Pact with a realm, but you are just a peace with them, you won't be able to do much to defend them anyway. Only one of you would participate in battles anyway, the other would just observe.
It is much more efficient to just keep your diplomacy in line with your treaties.
EDIT: There was also a discussion here that has some good information on the hows and whys of the alliance bloc system:
https://forum.battlemaster.org/index.php/topic,8753.0.html
