One physical display per port (even if it's a dual stream 5k) is a limitation of Thunderbolt 2 - the ability to support 2 up-to-4k displays on a single port is a Thunderbolt 3 feature.
Thunderbolt 1/2 always allowed two displays per port. Remember that you can chain two Apple Thunderbolt Displays (which are Thunderbolt 1) together to a Thunderbolt 1 or Thunderbolt 2 Mac.
Thunderbolt 1 and Thunderbolt 2 have the same bandwidth - 20Gbps - except Thunderbolt 2 combines the two 10 Gbps channels into a single 20 Gbps link.
A 2560x1600 display is only 8 Gbps, so a Thunderbolt 1 or Thunderbolt 2 cable can carry two of those (HBR link rate = 8.64 Gbps).
Thunderbolt 1 and Thunderbolt 2 docks have a limit of supporting 1 display, but you can chain docks together to support 2 displays. Or you can connect a Thunderbolt 3 dock to a Thunderbolt 1/2 Mac to connect two displays to the same Thunderbolt 3 dock. A Thunderbolt 3 to Dual DisplayPort Adapter can also work. The only one with a female connector that can be used with the Apple Thunderbolt 3 to Thunderbolt 2 Adapter is the OWC Thunderbolt 3 to Dual DisplayPort Adapter but I don't know if there's enough power from the Apple Adapter to make that work. In any case, you can connect the adapter to a Thunderbolt 3 dock which has its own power.
The 10 Gbps channels of Thunderbolt 1 don't have enough bandwidth for 4K60 (16 Gbps). Thunderbolt 2 can connect one 4K60 display. Thunderbolt 3/4 can connect two 4K60 displays.
MBA 2017 had a single Thunderbolt 2 port. Apple would have had to re-design the MacBook Air chassis to accommodate a second TB2, DisplayPort or HDMI port to support the extra display.
Thunderbolt 2 can support two displays like I said above, but maybe the Intel HD Graphics 6000 can't support three displays (including the built-in)?
MBA 2018 used Thunderbolt 3 ports which solved the problem. Apple would have had to go out of their way to disable the extra display.
Intel UHD Graphics 617 can support three displays (including the built-in).