Generally speaking, room on a realm is mostly finite. It isn’t necessarily about how much the server can handle, as our servers often some of the best available, it’s usually based on how much everyone on the server can.
If you have more characters in an area that increases how much each player’s system has to render, add to that spell effects, etc… and even those with fairly beefy systems can experience an issue.
For regular World of Warcraft we have sharding available, where new instances of the same area will be created as the population in the area reaches a maximum. I don’t believe Classic has that, or at least not in to the same degree.
Entirely different teams handle each.
Our Developers are monitoring the log in queues and the stability for the game. They will continue to do what they can to improve performance and allow folks to log in.