Which are the limitations of narrow gauge tunnels? I don't understand why I can't build a tunnel here (see image), since it would be the most useful.
Recent versions of Extended don't seem to allow auto-building tunnels of more than 1 tiles (+ mouths, for 3 tiles total) with a single click. In order to build tunnels, Ctrl+click at end to build the tunnel mouths, switch to underground view, and then you should be able to drag-click with the tunnel tool to connect the tunnel mouths with a tunnel.
An example of the longest possible single-click tunnel at the west, and tunnels built with Ctrl+click in the middle and east.
(https://images2.imgbox.com/2d/11/vnGRomBt_o.png) (http://"https://imgbox.com/vnGRomBt")
BTW you also need to build at least one tile of the desired track type first, otherwise the tunnel will have the cheapest possible track.
There are complicated restrictions on (standard-gauge) railway tunnels, but AFAIK these shouldn't affect narrow-gauge tunnels because there's only one available (apart from when they overlap briefly in 1871).