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An Intel 386 or later processor can address up to 4GB of memory, which the processor manages in 'pages', each of which is 4K in size. Since the vast majority of people have far less physical RAM than 4GB, programs are allowed to occupy as much of this virtual 4GB of space as they wish, but with only the active parts actually in physical RAM. Any remainder is stored in the 'swap' or 'page' file (the first term is used by Win 95, 98, and ME, while the second refers to Win NT, 2000, and XP).
If one of your applications ever tries to access an address that isn't currently sitting in system RAM, this generates an interrupt called a page fault, and the system then retrieves the address either from an application file on your hard drive or from the page file. But data will only be paged out to the page file if you have less RAM than you really need. Otherwise it sits in the Page Pool in RAM, along with current data pages and the file cache (the vcache of Win 9x), which contains data recently read or written to your hard drives.
There is also a non-paged area in RAM for critical code that can't be sent to the page file. Any remaining RAM is normally used to make the file cache larger. This last fact is one that causes a lot of confusion: Microsoft regard unused RAM as wasted space, while many users worry if their free RAM figure becomes low. The most important thing to remember is that if any application requires more physical RAM, some of the file cache will be instantly discarded to make way for it, so we don't have to worry about XP cache size as much as many people think.
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