what are the limitations for what a free acount user can/can not do for their layout?

You cannot create styles or use styles. Nor can you use scripting languages or embed objects (though that's for all LiveJournal users, since it poses a security threat).

Other than that, you can actually customise your LiveJournal to an extremely far extent (such as adding sidebars, scrolling entry boxes, etc.), but it depends on the type of premade layout you use (Generator being the most customisable IMO).