The actual minimum size is 65595 × 4 KB = 268677120 bytes = 256.23046875 MB. Try this on Linux:

truncate -s $((65595*4096)) diskfile
mkfs.fat -F 32 -a -f 1 -h 0 -R 2 -s 1 -S 4096 diskfile

If you change 65595 to 65594 it'll report WARNING: Not enough clusters for a 32 bit FAT!

A FAT partition must have at least 65527 clusters, and you need many more sectors for the metadata. The amount of metadata blocks depend on the formatting tool, for example you can see in the command above:

• -a: disable alignment to shrink the size
• -f 1: creates only 1 FAT table instead of 2
• -h 0: no hidden sectors
• -R 2: only 2 reserved sectors

With the default formatting options in Windows the minimum size will be larger than that, and then you'll need to round the number up to some better value for alignment and various reasons. A multiple of 4 MB is a good number, so I guess that's why MS choose 260 MB. That's why it's 36 MB for a 512-byte sector disk

Note that those limits are just artificial and not the actual limit in FAT32. For example Windows formatters can't format FAT32 partitions larger than 32 GB but other 3^rd party formatters can, although it's not a good idea to have such huge FAT32 partitions

In short it's probably because MS tools chose the minimum size of a FAT32 partition to be the next multiple of 4 MB above 65527 clusters, and the maximum size to be 32 GB