CreateNewBlock() has this code:
3368 uint64 nBlockSize = 1000;
3369 int nBlockSigOps = 100;
3370 while (!mapPriority.empty())
3371 {
3372 // Take highest priority transaction off priority queue
3373 double dPriority = -(*mapPriority.begin()).first;
3374 CTransaction& tx = *(*mapPriority.begin()).second;
3375 mapPriority.erase(mapPriority.begin());
3376
3377 // Size limits
3378 unsigned int nTxSize = ::GetSerializeSize(tx, SER_NETWORK);
3379 if (nBlockSize + nTxSize >= MAX_BLOCK_SIZE_GEN)
3380 continue;
3381 int nTxSigOps = tx.GetSigOpCount();
3382 if (nBlockSigOps + nTxSigOps >= MAX_BLOCK_SIGOPS)
3383 continue;
3384
3385 // Transaction fee required depends on block size
3386 bool fAllowFree = (nBlockSize + nTxSize < 4000 || dPriority > COIN * 144 / 250);
3387 int64 nMinFee = tx.GetMinFee(nBlockSize, fAllowFree);
The last couple of lines here relate to one of the free-transaction rules: if the size counting the new tx is < 4000 then it is eligible to pay no tx fee.
I wanted to point out the first line, which initializes nBlockSize to 1000. It means there is only 3000 bytes reserved for free transactions, not 4K as often stated.
dPriority for a tx is calculated as sum over all input transactions of the input value times its depth, divided by tx size in bytes. This is compared above with 144/250, in units of bitcoins. 250 is about the size of a simple transaction, so to be eligible for no tx fees beyond the 3000 bytes area, the average depth of the inputs times the tx value must be > 144 btc (more for complex transactions with many inputs). If so, the GetMinFee() function allows up to 27K of space.
A special case is transactions with input(s) not in blocks. These don't contribute to priority, as though depth==0. If all the inputs are not in blocks, then dPriority will be zero, and the tx can go into the block only if its predecessors have got into the block.
If someone sends out a bunch of transactions quickly, such that each one depends on the one before, then all but possibly the first will have dPriority zero. With no tx fees, only about 12 can get into the 3K free area. If there are other transactions around, there will be room for fewer.
I do see a pattern of blocks about 3.1K in size with about 12 transaction. Also there have been reports of chains of transactions, each dependent on the previous, getting into consecutive blocks, one per block. This might be because with each new block, (only) the next tx in the chain gets nonzero dPriority.
