I haven't yet established a file limit as there are numerous upon numerous fles stored within that drive and have yet to hit a limit. Do note that navigation of the files and folders slow as there is more content added. But, I am talking about a lot of content before this is noticable.
Yes, the unit will read the file contents.
Another suggestion for powering the drive ia most external drives also provide a connector for external power. If the USB doesn't provide enough power to spin up the drive, add power through the power port on the drive. This does work.