A SET ROWCOUNT statement simply limits the number of records returned to the client during a single connection. As soon as the number of rows specified is found, SQL Server stops processing the query. The syntax looks like this:
SET ROWCOUNT 10
WHERE EmployeeID = 5
ORDER BY OrderDate
SET ROWCOUNT 0
To set this option off so that all rows are returned, specify SET ROWCOUNT 0.
When does it work?
SET ROWCOUNT option is ignored for INSERT, UPDATE, and DELETE statements against remote tables and local, remote partitioned views and when an explicit TOP expression is used in the same statement. This includes statements in which INSERT is followed by a SELECT clause. SET ROWCOUNT overrides the SELECT statement TOP keyword if the rowcount is the smaller value.
How does it work?
Setting the SET ROWCOUNT option causes most Transact-SQL statements to stop processing when they have been affected by the specified number of rows. This includes triggers and data modification statements such as INSERT, UPDATE, and DELETE. The ROWCOUNT option does not affect dynamic cursors, but it does limit the rowset of keyset and insensitive cursors. This option should be used with caution and primarily with the SELECT statement. The setting of SET ROWCOUNT is set at execute or run time and not at parse time.
Though SET ROWCOUNT n cannot be used in a UDF, the current ROWCOUNT limit setting of its caller will be applied to the SELECT statements in the UDF. When SET ROWCOUNT n applies to a SELECT statement with sub-queries, the results and ordering are always guaranteed. To avoid confusion and unexpected logical errors, it’s better to turn SET ROWCOUNT n on just before the final SELECT statement that returns the records.
SQL SERVER 2005
In SQL server 2005, SET ROWCOUNT n has the same behavior as SQL server 2000. It’s recommended to use TOP (n) instead of SET ROWCOUNT n.
Reference : Pinal Dave (http://blog.SQLAuthority.com)