Not sure what you meant with "Can I increase the size of this variable without worrying about the SQL limit?". As long you do not try to insert a more than 4000 VARCHAR2 into a VARCHAR2 SQL column there is nothing to worry about.
Here is the exact reference (this is 11g but true also for 10g)
http://docs.oracle.com/cd/E11882_01/appdev.112/e17126/datatypes.htm
VARCHAR2 Maximum Size in PL/SQL: 32,767 bytes Maximum Size in SQL 4,000 bytes