Doesn't that defeat the "Trivial to remember" part of the xkcd concept of "Trivial to remember, hard to guess?"

That means you only have 7 entities to remember, which is supposed to be what humans can handle easily. (Though I understand now that this is stale knowledge.)

The number refers to the capacity of working memory and has indeed been revised over time. It's a complicated issue, but 4 units of information is now considered a more accurate approximation. But if you're remembering a password, you're dealing with long-term memory, which doesn't have this limitation.

http://en.wikipedia.org/wiki/Working_memory#Capacity

Long-term memory usually accepts most information from short-term memory not direct sensory input, so it is easier to memorize when you break down things in chunks first.