No publicized IP limits related to SFS, but do note that Steam can be a buggy bandwidth hog. As long as it's not being abused to rent games to other users or cheat it seems like it's perfectly within the ToS, but if you have any doubts you can try asking Steam support.
Does Valve care to stop this? Is it against the terms and conditions?
Will I be punished for any cheating or fraud conducted by other users while playing my games?
Your Family Library Sharing privileges may be revoked and your account may also be VAC banned if your library is used by others to conduct cheating or fraud. Additionally, VAC-banned games cannot be shared. We recommend you only authorize familiar computers you know to be secure. And as always, never give your password to anyone.
Is there a limit to the number of accounts shared to a given user or machine? A limit to the number of accounts by IP?
Is there a limit to the number of devices or friends I can authorize to share my Library?
Yes. You may authorize Family Library Sharing on up to 10 devices at a given time, and for up to 5 accounts that may then use your game library on any of your authorized computers.
What are the pain points here beyond the initial setup and sharing?
Can all Steam games be shared with friends and family?
No, due to technical limitations, some Steam games may be unavailable for sharing. For example, titles that require an additional third-party key, account, or subscription in order to play cannot be shared between accounts.
More info on the help page.
Can two users share a library and both play at the same time?
No, a shared library may only be accessed by one user at a time.
Sometimes the games I’ve been given access to are unavailable for me to play. Why?
Shared games are only available on devices that have been authorized by the account holder. Shared games will be unavailable on even an authorized device when the account holder’s library is currently in use on another computer.
Who owns and can access the DLC and in-game content associated with a shared title?
A guest will have access to the lender's DLC, but only if the guest doesn't also own the base game. Guests may not purchase DLC for a base game they don't own. Any player may purchase, trade, earn, or otherwise acquire in-game content while playing a game, but in-game items cannot be shared between accounts. These items remain the property of the account that purchased or acquired them, whether borrowing or lending the base game.
Can region-restricted content be shared across regions?
No, any region restrictions will remain in place when lending or borrowing content.
Quotes are excerpts from the landing page for SFS on the Steam website.