The short version of the joke is seriously funny, while the full sentence falls flat.
In the license plate scenario, we are aware of the rules of the game (the character limit and the DMV's policy of no obscenity on license plates) so when someone can create a seven-character joke that narrowly sidesteps the obscenity rule, we think well done sir.
Peter Thiel uses artificial constraints as a thought experiment: take your 10-year goal and ask yourself how you can achieve it in six months. Usually this is an impossible task, but the exercise can reveal thought patterns or strategies that might shorten your timeline.
Elon Musk is also notorious for setting jaw-dropping deadlines. He'll often miss them, but the constraints can fuel out-of-the-box thinking. While building the Falcon 1, Elon asked manufacturer Barber-Nichols to build a turbo pump for under $1 million and in less than a year. The pump was completed in thirteen months instead of twelve, but Spacex still won. In the words of a Barber-Nichols exec: "Boeing might do a project like that over five years for $100 million."
Great businesses have been built on limitation. Twitter started out with a 140-character limit. This forced users to leave out filler words and communicate the core of their message. Even now with a 280-character limit, we users have used this artificial constraint to create an entire world of Twitterature that longer-form social platforms such as Facebook and Reddit can't match.
A real estate development company in Tempe, Arizona is creating an artificial constraint for their apartment complex: they're creating a car-free community. Culdesac aims to bring the "bring the community to you" by designing a complex with its own coworking spaces, restaurants, and tree-lined walkways. The creativity began once they decided to design without cars in mind.
At Amazon, Jeff Bezos had a "2-Pizza Rule" which meant that if a meeting takes more than two pizzas to feed everyone, then it's probably too big. Nothing physically capped meeting size, but Jeff's artificial constraint helped to do this instead.
Jack Butcher has used artificial constraints to build a massive personal brand. He illustrates concepts using a signature white-on-black line-drawn layout. This allows Jack to produce work quickly while remaining recognizable.
Perhaps more than business, art relies on artificial constraints. Composer Igor Stravinsky maintains that the constraint doesn't need to have a deep raison d'etre:
The more constraints one imposes, the more one frees one’s self. And the arbitrariness of the constraint serves only to obtain precision of execution.”
Constraints in art are everywhere. Giuseppe Arcimboldo's portraits made up of fruit are fascinating because he created his own limitation and respected it. He didn't invent an ear-shaped vegetable to make his work any easier because that would have ruined it.
Director Luca Guadagnino chose to shoot the entire film Call Me By Your Name on one single 35mm lens. The result was an in-camera feel and filmography that let the film's story and aesthetic come through to create an award-winning piece.
Picasso's light paintings are constrained by the fact that there is no break in the line, and no piece of the line can be wasted.
Embrace constraints. They result in great work.