what is the character limit for Free-Form Text field type?

300 chars

what field has the largest capacity

Long text - 1,000,000 chars

I would not use Long Text unless absolutely necessary - wrecks storage.

turns out column fields have less options than body fields so we cannot chose those options

You can't really do anything with a long text field anyways - it's virtually only useful in the user interface while directly looking at the record.