The answer to your question used to be on one of Terrence's Guides on GameFAQs.
The Physical Formula for Base Damage is defined as such:
Base Damage = Att + [(Att + Lvl) / 32] * [(Att * Lvl) / 32]
Ability Power and the Defense Stat are then used:
Damage = [(Power * (512 - Def) * Base Damage) / (16 * 512)]
Anyway, the damage type for Ghirofelgo's (I don't blame you for not remembering that name) slice is the same as most characters' weapons. It's a function of level, strength, and attack power. His level is 26, his strength is 50, and this attack's power is 2.5. That's all pretty common for that point in the game. Your defense is a function of the Defense stat. None of that equates to me to being larger than 400 even with 0 def. In my defense, I've never found the damage formulae in the executable so I don't know what it really does.
The answer to your question, AFAIK, is that the game doesn't limit or increase max damage based on your characters' stats.
