or do we just "give up" at some vague point short of "perfection"?
My guess is that this is true to some degree for almost everyone.
It has become a pattern that I have noticed. In each step, there comes an endgame where anything else I could do would cause as many problems as it creates.
When I'm forging, I get down to the hammer polishing stage, where I'm trying to smooth and even everything out by hammer as much as possible, to minimize and make easier the filework ahead. There comes a point with the hammer polishing that any more striking with the hammer that I am doing is making dings, dents, bulges, or other undesireable marks just as fast, or faster than it is evening then out. That is the point at which I'm done hitting with a hammer.
The same is true of filing. When I get to the point of one stroke with a file at a time, and I begin to notice that whenever I cut with the file, I am making undesireable side effects as fast or faster than I am removing, then I'm done filing.
And so on, with sanding, polishing, shaping handle material, affixing the handle, etc. right on down the line. Once everything is put together and polished, and I can't do anything else without creating as much a problem as I may solve, the knife is done.
This is, frankly, the part of knifemaking that bothers me the most. The project I am currently working on, for example. I had to leave the file behind at a point that I was in no way satisfied with. The bevels are not nearly as straight as I would like, nor as even, side to side as I would like. However, every stroke of the file seemed to make another area as uneven as the one I just fixed. I chased one low spot down one end of the blade, only to find that it made the other side look too steep. I tried to get the other side evened out, only to start chasing another low spot. With a double edged symmetrical design, this quickly became a losing battle.
To put it into perspective, I have a friend I've tried to teach a bit of knifemaking to. Now, I'm not much of a knifemaker myself, and I'm terrible at teaching anyone anything, but Mike and I speak the same language, and he's sharp as a whip. He's good with his hands too, having worked wood most of his life. Thus, I figured he stood a good chance of learning something from me. He made exactly one knife and gave it up for the birds. When I showed him the sword in progress he asked me "how the hell do you get those bevels so damn straight and even?". This was the very thing that disappointed me the most about the blade, and it's the one thing he picked to compliment.
Anyhow, to make my point, it's my best guess that as experience and expertise grow, this point of diminishing returns receeds, and becomes finer and finer, but never actually disappears. Thus, we know when it is finished when we reach the point of diminishing returns on the project as a whole.