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Is there a limit on what tinker's tools can do?
Or can you make anything you can imagine within the reason of the world? For instance, could you use materials to construct a plane or parachute?
As a player I would find that amazing, but as a DM I would find that horrifying.
If you are talking about the Tinker's Tools found in the players hand book, then I don't think you need to worry. The tools themselves don't seem to be defined in the book, but the rock gnome tinker ability lists some things you can make with them. In particular, they're tiny, clockwork, gadgets, so it seems reasonable to assume that tinker's tools specifically refer to the tools you'd need to work with small mechanical devices, rather than large vehicles or fabrics.
More generally, just because the players can envision how to build something does not mean the characters can. Things like planes and, to a lesser extent, parachutes require a specialized knowledge of physics to get right and there's no reason to assume the characters would have this knowledge, even the wizards. What's more, in a world where dragons and griffons can fly, it's perfectly possible that traditional aeronautic devices, like planes from our world, simply wouldn't function.
You're perfectly in your right as DM to say "No, you can't build that thing." That said, you should endeavor to give them both the in-character reasons "Those aren't actually the right tools, physics doesn't work that way in this world, and your character has no reason to think this would work" and the out of character reasons "I'm worried this will cause balance problems and make it hard for me to run a good campaign for you." If you only tell them the in character reasons then the players will, naturally, view your reasons as obstacles to overcome, rather than a request to stop trying. On the other hand, an out of game request won't cause any confusion, but in game reasons can make it go over better and are nice to have regardless.
If one of your players really wants to play a character who can build anything via mundane means, you could try working with them to find or make a class that focuses on just that and only builds level appropriate things in reasonable quantities (this means both not being able to build a bi-plane at level one and being able to build a jet pack when everyone else is getting flight spells).
Yes, all Artisan's Tools are limited as to what they can help a character achieve according to the profession they belong to (emphasis added):
Artisan's Tools[…] include the items needed to pursue a craft or trade[…] [which let] you add your proficiency bonus to any ability checks you make using the tools in your craft.
So tinker's tools are limited to the abilities of the profession of “tinker”:
adapting, meddling or adjusting something in the course of making repairs or improvements
… which doesn't cover the ability to craft airplanes or parachutes. Mostly they can mend pots and other household items, as well as craft utensils from soft metals like tin or (at its most fantastical) small clockwork trinkets. Useful but not very exciting, unless your aim is to be highly sought-after by the populace when you visit a rural farming community.
If you want PCs to have access to legit skill with mechanical engineering, consult with your DM for whether and how you can get proficiency with Intelligence (Engineering) or Intelligence (Invention) skills; or as a DM, introduce those skills via a custom background or world-building details that suggest their existence as fields of knowledge. Proficiency with using a “tinker's dam” isn't sufficient to build complex mechanical devices; doubly so if the DM's setting doesn't even include engineering as a possible field of knowledge.
The Player's Handbook doesn't provide much information about each type of tools other than its name; aside from thieves' tools, players and DMs were left to largely figure out for themselves how to make tool proficiencies relevant. However, Wizards of the Coast finally provided some more specific guidance on how tool proficiencies could be made useful with the release of Xanathar's Guide to Everything
Xanathar's Guide to Everything (p. 78-85) adds guidance on tool proficiencies, providing both general guidance on how tool and skill proficiencies might work together and specific guidance on each kind of tool. For each kind of tool proficiency, it lists the components of that set of tools, relevant ability checks that proficiency with that tool might grant you advantage on if you're also proficient in the skill, a special use of the tool for those proficient with it, and sample DCs for activities the tool might be used to perform.
Tinker's tools are described on p. 84-85:
A set of tinker’s tools is designed to enable you to repair many mundane objects. Though you can’t manufacture much with tinker’s tools, you can mend torn clothes, sharpen a worn sword, and patch a tattered suit of chain mail.
Components. Tinker’s tools include a variety of hand tools, thread, needles, a whetstone, scraps of cloth and leather, and a small pot of glue.
History. You can determine the age and origin of objects, even if you have only a few pieces remaining from the original.
Investigation. When you inspect a damaged object, you gain knowledge of how it was damaged and how long ago.
Repair. You can restore 10 hit points to a damaged object for each hour of work. For any object, you need access to the raw materials required to repair it. For metal objects, you need access to an open flame hot enough to make the metal pliable.
The activities the tinker's tools could be used to perform in the table after that include "Temporarily repair a disabled device", "Repair an item in half the time", and "Improvise a temporary item using scraps".
Thus, it is clear that tinker's tools are quite limited in what they enable you to do. They don't let you make anything you can dream of (such as a plane or parachute, even assuming your character could conceive of such a thing); they simply let you fix up small things, and potentially jury-rig a temporary replacement for something that breaks. Think (a limited version of) MacGyver, not some futuristic scientist/inventor hybrid.
I could see tinker's tools used to augment other tool sets.
A clockwork bellows that increases smithing speed.
A clockwork off-axis table* for mixing ingredients. Bonus to Alchemist, Brewer, Herbalist, and Poisoner sets/ tools. *Modern term is a chemist mixing table.
A clockwork articulated pen plotter to double the output of a calligrapher, artist (painter's supplies), forger*, or cartographer. *Using it for forgery would be amazing.
Some initial ideas. Obviously, tools alone won't do it and you might need to outsource parts or have other tool/ skill sets.
The bellows would be easy in the small scale model for a tinker. A full size version would require a leather worker, smith, tinker, and carpenter. And that is just for advanced bellows.
The pen plotter is infinitely more complex and would likely require more trades.
