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PayPal applied a limit on my account due to having gone beyond the receiving limit.
I was not expecting any money from anyone through PayPal so I don't know who paid me.
I also cannot see this payment in my recent activity.
Is Paypal holding this fund, and will it be released when the limit is removed?
When someone sends you money, there should be PayPal email sent to you of who sent payment and for what if included. You can lift limit by linking a bank and/or credit card depending on the country of your PayPal account, once you lift limit, funds should show in your account. If payment is further held in pending balance because of PayPal's 21 day funds availability hold, you can get it sooner by entering tracking number or updating order status and asking the sender to confirm receipt on their end of the transaction to release funds into your available balance.