Whenever I lower the setting for Character Model Limit, some graphics simply disappear.
Examples are the pink fog / transparancy on mesmer phantasms. As well as the blue ghost effect on Ascalonian mobs.
My guess would be that Model Quality settings would affect the visibility of effects such as these, while Model Limit would solely affect the number of things onscreen, as indicated by the tooltips when you hover the mouse over these options.
Unfortunately this does not seem to be the case in-game.
Related Thread:
https://forum-en.gw2archive.eu/forum/professions/mesmer/Phantasms-are-broken