If you cast spells instead of using Combat Abilities, having a higher INT means each of those spells does more damage, on average. But there's a limit to how much improving your INT will help you, and it's level dependent. This limit is called the INT cap.
There is a simple formula for calculating the INT cap from level: the cap is equal to level*7 + 20. How is this used? The potential damage a spell does seems to rate the caster's int as a fraction of the caster's damage cap. I don't know that this is the right formula, but it might be something like
(damage) = (base damage) + (damage constant) * min((INT current)/(INT cap), 1).
Of course, there is also a random noise factor on damage, as well. We can think of the preceding formula as a calculation for the average damage and then a random adjustment is either added or subtracted.
And while we are discussing it, I want to mention damage resistance. There is no mitigation of spell damage, which is to say that the mobs hide, or spells, or whatever do not reduce
the amount of damage that a spell does. They may
however, resist the spell entirely, suffering no ill effect from it. The likelyhood of this happening depends on the relative level of the caster and target, and the resistance value of the target for the particular kind of spell incoming.
So higher mental resistance means a greater chance of resisting not just a mez, but also a mental-based direct damage spell. Upgrading a spell to adept or master seems to make it resisted less, but it also seems true that some spells stick more than others.
Anyway, back to the cap. The effect of INT on damage is normalized (and capped at) the level-based cap. Let's imagine that you are an illusionist of level 56. So the int cap for you is 7*56+20 = 412. And let's imagine further that somehow you have managed good enough gear that you have 200 INT when all buffed and ready to go.
Your Laser Beam does about 300 points of damage on average. Now you level up. You were at 200/412ths, or 48.5 percent of the cap, but the cap just increased by 7, so you are now at 200/419ths of the cap, or 47.7%. Your average damage for the same spell has gone down. Not by much, but it has gone down.
This has been the source of some complaint on net message boards. I can understand that because the idea that your damage goes down as you level up is very counterintuitive. It doesn't make sense. You are supposed to get better as you level up, not worse. And it makes people feel like they are on a treadmill.
Mitigation and avoidance values have much the same property. Avoidance is based on AGI, and there is an AGI cap, too. Mitigation is normalized to mobs of your level, but mobs of your level do more and more damage as you level up.
The game, of course, is supposed to get harder as you level up, and if you could be successful at level 60 with gear you wore at level 20, it would be pretty silly. But it feels arbitrary to have your damage with a given spell go down as your level goes up. The caps were introduced with LU 13 and the big combat changes, and this property noticed shortly thereafter.
Moorgard has posted that they are aware of the problem, and agree that it is a problem. He said that some ideas had been tossed around but that it wasn't going to be an easy fix.
I personally don't think this is an earthshaking problem. The decline in damage is small enough that you wouldn't notice it unless you parsed output regularly. And there's probably a fair number of players that don't even realize that there is
a cap on INT.
Furthermore, the effect on gameplay is minimal. After all, leveling up gets you new spells to play with, which do more damage. Mobs die quite fast to groups with mages, and frankly, the biggest problem is not lack of dps, but controlling aggro when the mages overnuke. So I think that aggro is a bigger limiting factor on mage dps than the INT cap.
That being said, I have to wonder why they adopted this system. One could have used the formula
(damage) = (base damage) + min(INT, INTCAP(level))*(damage factor)
instead. Why didn't they? The effect of INT is capped at any level, which I think is important, but the effect of INT isn't normalized, so spell damage never goes down.
I don't have a good answer for this. Maybe the answer is, "we didn't think of it, and changing now would involve a lot of work, since we'd have to go around and choose numbers for each and every spell, and then run it through a bunch of testing just to make sure we haven't forgotten or overlooked something, or accidently make a level 12 spell do 1000 damage. And we just don't think it's important enough to justify the effort." But companies never say that to their customers, now, do they?
I could certainly empathize with such a statement. Often changes which seem easy to an outsider aren't. Sometimes that's due to sloppiness in architecture or coding, but usually its because nothing is ever as simple as it seems.