There’s also a systems level rationale to this. Without good isolation, you’ll get a feedback loop: threads start to step on each other’s toes. This leads to slower response times. Which, at a given request pressure, leads to more parallel threads. Which slows them down even more. If there’s a brief peak in pressure, that drops the response time below a critical point, such a system will never recover and you’ll get a server furiously computing without an apparent reason only to behave normally after a restart.

Yes, and thus circuit breakers. By sizing offered capacity to some factor of actual capacity you can limit the effects of too much demand to causing backpressure naturally (rejecting requests) instead of timeouts and retries. This then allows you some level of access -- such as to your health and diagnostics end-points, because CPU usage doesn't become so high that you can't even run those.

Most systems cap the size of their thread pool and put excess requests into a queue.