Whenever somebody's not aware of a facet in FF7, I am reminded of one of my friends. He had no idea how to catch a chocobo so he levelled up until he could beat the Zolom without breaking a sweat. Level 30 by the Zolom. Level 70 after the Temple Of The Ancients. And then his save got corrupted.
But basically, yeah, you have to set the Limit. Go to "Limit" in the menu, click on the level of limits that you want, and choose "Set" to get that Limit level.