A VFD controls both voltage and frequency, so essentially everything that the motor can do can be commanded by the drive. Torque limit then is just a way to describe that the VFD will use output torque as a feedback to the microprocessor so that it will maintain the proper voltage / frequency pattern to the motor such that the output torque is constant. It calculates torque based on the output voltage / frequency and the current draw by the motor.
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Many VFD makes operate in what is called constant flux mode, meaning a constant Volts/Hz ratio. In this mode of operation the motor is a torque producing machine with the limiting factor being amperage.
In open loop operation, that is operation without any feedback from an encoder or tachometer, the drive is set and provides the current that is demanded by the motor. Drives normally will come with an "overload" comment of 125% or 150% OL for some time frame. That number is the amount of time the drive can provide the specified current without damage. Therefore the amount of torque you get out of the motor is a factor of the drives current limit. The other assumption is that you are not running the motor at so high a torque that is overheating or past the motors breakdown torque.
What JRAEF is describing is what I have come to know as a Vector Drive which is particularly useful in processes requiring tight speed and torque control.
