Hey Kara,
How long is too long to leave seedlings in their starting plug or pot, and when to pot up or transplant to the field is really on my mind this year, 'cause I'm planning a lot more starts than before, and for one, I only have so much room under lights! Also, if the summer weather is as unpredictable as this winter has been, the chances of having to delay transplanting for weather reasons will be greater than ever.
This is far from figured out for me, and I hope to learn a lot this year.
From my bit of experience and research so far, for a general rule: IDEALLY, seedlings should be in a container that's at least as big around as the spread of their leaves, and as DEEP as possible. Once the leaves start growing past the container, and especially if the container is not particularly deep (less than 3-4"/15-20cm), it's probably safe to assume that the roots are getting tight as well, and the plants will soon start to figure they've got limitations and start growing small.
It's always useful to examine the roots: remove a seedlings at different stages and from different pots, carefully clear away the potting mix, and see what's up. In this case, each picture's worth a thousand words!
A commonly found rule is to move up seedlings when they've developed their first true leaves (the leaves after the seed leaves, which for most veggies are the first pair). I think this is more of a fragility thing, and important if you start a bunch of seeds together in one flat or pot. I start usually in separate cells in a plug sheet, so this rule usually doesn't mean much, unless I use very small cells, like a 200-cell plug tray. It's the cell/pot size compared to plant size, and how long I want to hold the seedlings, like, 5-6 weeks.
Plants do scale their growth to fit their containers, so a seedling that's been constricted will take a time after transplanting in the garden to get back to a full-growth program. This varies by crop. For example, I've heard that peppers have strong "root memory": if they get pot bound, they can take weeks to recover and start growing big. This is something to pay attention to crop-by-crop.
I've looked around a bit, and haven't found much on this whole topic. I did read a university study on tomato plants, where they basically found that starting weeks earlier in the same size pot didn't make much difference in the field, compared to starting in DEEPER pots.
A couple of days ago, I posted a picture on the blog showing lettuce root development. The illustration at the bottom left shows two 3-week-old lettuce seedlings, one in loose and one in compacted soil. Look at the size of the root systems (at least 6" across at the top, and several inches down), compared to my 3-week seedlings in 72-cell plug sheets (1.5"W x 2.5"D)!! It seems obvious that any root constriction is gonna make a difference, slow the plant down, so bigger and deeper and faster to the garden seem to be the key rules.
The deepest pots you can manage is probably the best single thing you can do.
Root bound is a real extreme. The term refers to when roots are spiraling around the inside of the pot, literally starting to strangle the plant. If you pop out seedlings and the outside is all wound in root, it's been in waaaaaay too long!
You can use a $4 transplant tool to avoid tearing roots when potting up. The photos at the link aren't that clear, it's basically a mini-shoehorn, a piece of stainless steel, 7" long and tapering from 3/4", and slight curved along the length. I don't know what others do, but indoors and sometimes even in the field, I rely on this little tool, it makes it practically foolproof when popping plugs out of all sizes of cells. Make sure the plugs are reasonably moist, and they'll hold together no problem, even if the root system isn't developed all the way down to hold it all together. You could make one of these, the stiffness and the curve are the tricks!
Since I don't have room indoors for bigger pots (I use mainly 72- and 38-cell plug sheets, and 3" pots for toms, eggplant, peppers and the squash/melon family), I'm experimenting with getting things out to the field faster, and protecting them a little more out there till they get established. Like, last season, I transplanted some barely 5-week-old toms from tiny 38 cells, and they seemed to catch up pretty well to the usual 6-7 week bigger-pot ones.
FINALLY, there are so many factors intimately involved, it's hard, not fun, and probably futile to try to isolate things too much (despite the efforts of Science). For example, the crop, air and soil temperature, how much you water and feed the seedlings, etc, etc, etc, all come into play. Some crops or varieties you may want to crowd a bit, to get a different result. So, it's just getting out there and experimenting and observing that seems most import, and hopefully tune your instincts!!
Hope that helps! I have fun writing these things out, I normally never think about them in this kind of...organized way, so it helps me learn! As always, I'm no "expert", and if anyone has other experience or opinions, PLEASE do post, I for one am eager to learn more!!