"...UART0_PFIFO register says configurable up to 128-datawords."
Like all other elements of Kinetis reference manuals, the peripheral description outlines the 'maximum potential design capacity'. Chapter 3 of each manual defines the characteristics selected to instantiate that peripheral within any particular silicon, and for this part UART0/1 have 8 bytes/entries, the others 1 (simple double-buffered function).
The 'dataword' terminology for the FIFO comes about because the 'FIFO logic' includes not ONLY the '8 bits of UARTx_D', but also other associated bits, including the potential ninth bit (R8, read in register C3) and NOISY and PARITYE status bits (UARTx_ED) to go with the databyte.
One other design-note: If you are going to use these expanded FIFOs and watermark-interrupts, I suggest you will also want to enable an 'idle line interrupt' to prompt your routine to empty the 'last few' (less than watermark, no more coming) from the FIFO.