While you are correct, that's not how it's measured. Chuck it up on a crank lathe and turn it .100". All you got is .100". You don't measure diameter "one side at the time".
What you set the lathe to and what you actually end up with are different by a factor of 2. But like Rusty says you measure the whole diameter, and that's how it's defined. A crank that's .100" undersize means the machinist set his lathe to remove .050". In this case the crank is .200" under so the machinist set the lathe to remove .100", but that's not the size. It's turned to .200" undersize.
As far as how far you can turn them, really the only limits are getting bearings and the strength of the crankshaft. If you're building big horsepower you don't want to turn a huge amount because the strength of the crankshaft will come into play at some point. But on a forged crank that's a different amount than a cast crank, the forged crank is stronger to begin with. The only other thing to consider is how deep the hardening of the bearing surface goes. Again, if you're building big horsepower you might want to consider having the bearing surfaces re-hardened if it needs a big cut. But even that will start plenty of arguments. If you're turning it .030" or less you don't have to worry about anything. And if you're not racing you can go a lot further than that.
