The macro for the limit operator is \lim.
Without the \, it just treated as three characters l, i, m. This is no different that $xy$ representing a product of two terms x, and y, so $lim$ is a product of three terms: l, i, m. So with $lim_{n\to\infty}$, the subscript is applied to the m term. Perhaps the meaning is more obvious if you write and equivalent statement:
$ l i m_{n\to\infty}$
Note that without the \ the three letters are in italics, representing variables. The operator \lim is not in italics representing an operator.

\documentclass[fleqn]{article}
\begin{document}
$lim_{n\to\infty}$
$\lim_{n\to\infty}$
\[ lim_{n\to\infty} \]
\[\lim_{n\to\infty} \]
\end{document}
lim_is treated as ordinary text and\lim_is the maths way of using limits. – Harish Kumar Mar 30 '12 at 0:51lim_is not treated as an ordinary text.lim_is standalonel, standaloneiand standalonemwith a following token as a subscript. To make it an ordinary text you have to put\mathit{lim}. – tohecz Mar 30 '12 at 7:07