Here is a great article on office online that should help clear this up for you a bit:
http://office.microsoft.com/en-us/sharepointtechnology/HA101736671033.aspx
In a nutshell SharePoint 2007 libraries can support millions of items, HOWEVER, rendering views becomes an issue when you have more than 2000 records returned. Generally speaking you want to use indexed columns on large libraries and make sure that views are returning less than 2000 documents at a time.
SharePoint 2010 improves on this even more.
Ted