Specification Limit - are the boundaries within which the products or services should operate in order to be acceptable by the customer. Any product / service which falls outside the specification limits is considered as a defect. Specification limit (more commonly called as spec limits) are usually determined by the customer. Other sources are research & development team, competition, regulatory bodies or industry standards etc.
An application oriented question on the topic along with responses can be seen below. The best answer was provided by Anirudh Kund on 29th November 2017.