The A600 and A1200's internal IDE connector is for 2.5" HDs (those that fit into a laptop). But 3.5" HDs can be connected through an adapter without problems. The laptop HDs get their power through the HD cable, 3.5" ones need an extra power cable. Nothing unusual about this.
Now, the cut wire is the reset line. Cutting it prevents the drive from spinning down when you reset the computer. Lots of PC HDs spin up too slow for AmigaOS (because a PC BIOS usualy waits ages before it starts booting). This is a hack, but not unusual, too.
The maximum HD size AmigaOS 3.1 can handle is 4GB. But there are software patches to overcome this limit. E.g. IDEfix and OS3.9.
Bye,
Thomas