Quadtree generation is controlled by specifying Maximum Vertices and/or Maximum depth:

Vertices - The quadtree will be subdivided if it contains more than the maximum number of vertices.
Vertices & Depth - Same as above, except it will stop subdividing beyond maximum depth.
Depth - Quadtrees are subdivided maximum depth times.

CreateQuadTrees (in_features, out_features, {count}, {depth}, {create_empty}, {create_square})

Parameter	Explanation	Data Type
in_features	Dialog Reference <p>The input features to partition.</p>	GPMultiValue
out_features	Dialog Reference <p>The output polygon feature class.</p>	DEFeatureClass
count (Optional)	Dialog Reference <p>The maximum number of feature vertices that will be enclosed by each quadtree.</p>	GPLong
depth (Optional)	Dialog Reference <p>The number of quadtree levels that will be generated. This ranges from 1-32.</p>	GPLong
create_empty (Optional)	Dialog Reference <p> Controls how quadtrees with no data will be handled. <ul><li>Checked - Creates all quadtrees.</li><li>Unchecked - Only creates quadtrees that intersect with the input features. This is the default.</li></ul> </p>	GPBoolean
create_square (Optional)	Dialog Reference <p> Controls the shape of quadtrees. <ul><li>Checked - Creates square quadtrees.</li><li>Unchecked - Creates rectangular quadtrees. This is the default.</li></ul> </p>	GPBoolean

CreateQuadTrees