This is fixed in Description of the Outlook 2013 update: March 12, 2013
Note: Exchange servers also have a device limit, which the Exchange admin controls. Exchange server users who are receiving this error should see Allow More ActiveSync Devices for more information.
Update: This error is less prevalent with the RTM build of Outlook 2013 and anyone using the Office 2013 Preview build should upgrade: the RTM is now available in the Office 365 trial.
The error should go away on it's own if you wait about a day. Outlook.com servers prune accounts that have reached the max limit a couple of times a day and clears the oldest relationships so it will eventually go away on it's own. You might need to keep Outlook closed or set the Outlook.com account to manual send and receives.
If you can't wait a day and a half for the error to go away, use POP3 to connect to the Hotmail/Outlook.com account.
An update will be released in March 2012 to fix this problem, however it will only work with the RTM build, not the Preview.
With the introduction of Outlook 2013 and support for EAS (Exchange ActiveSync), users are discovering that Hotmail has limits to the number of devices they can connect using ActiveSync.
I am having an issue with too many devices with my Hotmail mail account when using Outlook 2013 to access Hotmail. I have 4 devices in total which generally all sync to the Hotmail account. It was working with Outlook 2010 and the Hotmail connector with these devices, don't know why it doesn't work now. Is there a limitation with the ActiveSync method?
You can't compare what worked in Outlook 2010 with the Outlook Connector and what works in Outlook 2013 using EAS. It's like comparing apples and oranges. The connector uses DeltaSync, EAS is Exchange ActiveSync.
To check the devices you have associated with your Hotmail account, visit https://devices.live.com/. Note that this may not list all of the computers that are configured with an Outlook 2013 EAS account.
This error is related to the number of folders you have in combination with the number of devices you're syncing with. If you have a large number of folders (more than 50) and you're syncing three or more devices, the Windows Live servers will generate this error.
You need to either remove folders from your Hotmail account or to stop syncing your Hotmail account with another device.
Also note that if you've reached the maximum number of folders for the Hotmail account online, you won't be able to add more in Outlook. You'll need to merge or delete some folders.