Now my confusion comes from the literature that states that a 1L bottle will develop 16X36exp rolls. Now is that dependent on tank capacity?
Yes, although you may be able to fudge that -- say by diluting more than the manufacturer recommends, as MattKing describes. His post has given some good advice (although I think he meant "If the tank you use requires that amount or
less you are fine" rather than "If the tank you use requires that amount or
more you are fine"). I've not seen much discussion that suggests that people try to get exactly
n rolls of film out of a bottle of developer by tweaking the dilution, though. Rather, I think most people just use one of the recommended dilutions and then, when the bottle runs out, either discard whatever fraction remains or combine it with developer from the next bottle. Used in this way, your cost for chemicals goes down if you use a tank that requires less solution.
Stainless steel tanks are generally best in this respect, although they cost more up-front. I've got a Russian plastic tank that's almost as frugal as my stainless-steel tanks (in fact, I use 250ml for a single roll in either tank, although there's almost no margin for error at that volume with the Russian tank). My AP-brand plastic tank requires 350ml per roll, IIRC.
The danger to using smaller-capacity tanks comes when you try to use a very dilute developer; there'll be fewer moles of developing agent in a smaller tank, so if the developer is diluted to the point that there's barely enough developer to do the job in, say, a 350ml tank, using the same dilution with a 250ml tank could become an issue. This is seldom a problem with common developers and dilutions, although it could be with some. (I've seen claims that using XTOL at greater than 1+1 dilution can cause problems with some films, for instance.)
This leads me to the next question. I am planning on starting with a single reel tank to get the hang of it. Now if I decide to develop 4 rolls in an afternoon then would I mix up only enough to do that? Or does one mix the whole L with 4L of water?
As I posted in another thread, I see no reason to favor a 1-reel tank unless you think you'll never want to process more than one roll at a time. You can always process fewer rolls (with less solution) in a bigger tank. Past a certain point it'll get awkward to handle a bigger tank, but that's not likely to be an issue when moving from one-roll to two-roll (35mm) tanks.
To more directly answer your question, with most developers you dilute from a stock solution or from a liquid concentrate to the working dilution just before use. So if you had enough rolls that you had to do them in more than one pass (or if they required different times, thus necessitating multiple passes), you'd normally dilute the amount you need for each pass just before doing it. You could, of course, dilute the total amount and then measure it just before use, but that would leave the developer diluted for longer, and developer that's diluted for use will normally go bad more quickly than the stock or concentrated form. I doubt if this effect would be significant for most developers, assuming you did the rolls back-to-back, thus using the amount you mix within an hour or two. Still, it's not much more work to dilute immediately prior to developing each batch vs. diluting it all beforehand.