Squirrels, in theory, can survive a fall from an object of any height due to two factors: their size and their mass. A force (such as the force of gravity) is calculated by multiplying mass and acceleration. The acceleration due to gravity on Earth is always roughly 9.81 m/s2, regardless of what object it is acting on. Squirrels are not very heavy—a grey squirrel only weighs about 0.5 kg—meaning that the force acting on a falling squirrel just isn't that big.
Force = mass*acceleration = 0.5 kg * 9.81 m/s2 = 4.9 N
We measure forces in a unit called "Newtons", named for Isaac Newton who gave us Newton's three laws of motion.
Compare this to, for example, a falling 50 kg human, which would be pulled downward with a force of about 490 N. A factor of 100 higher!
On top of being small, squirrels are fluffy and intuitively spread their bodies out when falling. This allows them to experience as much wind resistance as possible, slowing down their rate of descent. Some squirrels even use this fact to glide through the air. While gliding is not the same as flight, we nonetheless call them flying squirrels.
For these two reasons, the terminal velocity (fastest speed while falling) of squirrels is slow enough that they will, at least in principle, never fall so hard that they hurt themselves.
