I'm sorry if this a daft question, but (in FSX settings) what exactly does 'unlimited framerate' mean?  I had assumed it meant that the system would be left decide how many frames it could handle, according to the demands being placed on it at any given time, rather than me locking the frame rate.  Is that right, or (with a modest rig) am I better to set a limit?

It means your CPU will try it's damnedest to do as many FPS as it can at the expense of anything else.  Some folks swear by it and some swear at it!  I keep mine locked at 25FPS and I have never regretted it.

I use the unlimited and limited in different situations.

When flying very FPS friendly aircraft like default or other GA that don’t take up much resources, I have to lock the FPS to around 30 otherwise the FPS will be jumping all over the place and it will stutter a lot.

When I fly more FPS demanding aircraft like PMDG and fly into aftermarket airports with lots of AI, I set it to unlimited and it often settles to around 25-35 FPS and is smooth as silk.

The best thing to do is just experiment and see what works best for you based on the plane and environment you’re flying in. 

Try locking it at one half of your screen's refresh rate and see if it's looks smooth for you.

Thanks everyone - very helpful.

Andrew