set_time_limit, rather than applying to the currently running script, applies to other PHP scripts as well (including scripts from other domains on the same server).

Apparently, set_time_limit affects any future PHP script that will be handled by the same instance of Apache (when using mod_php), i.e., the timeout value is not reset for every new script.

Simple testing: 

(Warning: this test will reduce server availability for the duration of the test.)

a. Make sure that PHP logs all errors in a file.
b. create a web page (PHP script) that only does "set_time_limit(1)".
c. Load that page (you might wish to reload it several times).

Now watch the tail of the PHP error log, as more and more "scrpit timed out after 1 second" errors appear in completely unrelated PHP scripts running on the server.

To stop the test, just run a different script that returns set_time_limit to its default.