When the numbers are high for too long, cats will start to experience neuropathy - when that happens they will have difficulty walking and lose strength particularly in their back legs. They will also lose a lot of weight, drink and pee excessively. And yes, the pancreas will struggle to recover the longer they are unregulated. Cats can also experience DKA which can be deadly if not treated right away.
So yes, it's important that we keep working to find a dose for Chloe that is both safe, and that will start to bring her numbers down into a healthier range. However, the increases need to be careful because sometimes it takes a few cycles for the cat to start responding to the new dose, so if increases are too large or to fast, you can end up missing a good dose and end up giving too much insulin. And as you've seen, that can result in hypo numbers which can also be very dangerous.
It's a tricky dance to find the right dose, and even once it's found, it will still move around from time to time. That's why monitoring with the tests is so important. You're doing a great job with the pre-shot tests, and as you're able to start adding in those mid-cycles are you have the past couple of days, it will really help.
So in the morning, assuming Chloe is above 200, go ahead and give 1.25u, and then aim to get tests every 2-3 hours until the evening pre-shot test. I'm so glad you'll be able to monitor tomorrow, those numbers will help a lot.