In our application we are planning to use app data to store some data. is there a limit of amount of data that can be stored? Also is there a way to purge appdata for a particular item?
It's defined as a binary field with maximum size in the database. As far as I know there is no limit, provided that your database can handle it :) Which makes sense because your application data is stored in the same field as mine - so it would be a bit of a nightmare to handle a maximum size.
The same API that lets you save application data also allows you to delete it. Make sure you only delete data you are responsible for, though! (You should always use a unique application ID)
You might be tempted to just delete all data, but be aware that products that are part of the suite also use application data. So if you did that, you might suddenly find that parts of the product / extensions lost data and settings. So don't do that.
The AppData field is defined as a BLOB. So the max size is the max size of what Oracle's or SQL Server's BLOB can handle: http://docs.oracle.com/javadb/10.8.2.2/ref/rrefblob.html, or http://technet.microsoft.com/en-us/library/bb895234.aspx respectively.
To purge, Peter already explained to use the API. It's a simply key-value type of usage, just like that of a hash-map. So use the same principle to delete.