The file size limit is 6Mb for files uploaded directly into a post. There is also a 1200×1024 pixel size limit. This size will not change.
Larger files with larger pixel limits can be uploaded using the media gallery. (10Mb 1600×1200).
A larger limit is allowed on the media gallery because an image is only uploaded the once then linked to within a post. If you attach an image to a post and want to use the same image again in another post, the image needs to be uploaded a second time. This is not the case with the media gallery hence the difference.
In both cases the system does try to reduce the file sizes during upload. It does this in more than 1 way. If a file is greater than the pixel limit, it will try to auto resize the image. If the file is too large in Mb, it will compress the image. In all cases, images are compressed for storage on the server and compression always causes quality loss. I don't have the ability to change compression, only the file sizes and pixel limits and unless everyone starts using the media gallery & contributes monthly to the running costs, there is no way financially that this site can support larger file sizes. Disk space and backup space is not cheap, plus increasing the file sizes will have a knock on effect on the physical performance of the server and hence access speeds to the site.
One thing to note is that physical size (Mb & pixel size) doors not equate to quality of an image.