Virtual Memory
You have a certain amount of RAM that the computer uses to store things that have been accessed by the computer recently or will soon be accessed. RAM is fairly fast, not as fast as cache memory and much faster than hard drive access. So say you have 512 MB of RAM. EQ2 can use that RAM to store things that it will access a lot.
Virtual Memory is hard drive space. When the RAM is full, things that arn't used as often get swapped out onto the hard drive. The computer acts like this is normal RAM in a way, only it is much slower to access. So if you have your full 512 in use, its going to put some stuff on the hard drive that isn't essential to the current running process. But, when that needs to be accessed, it will swap it out with something else in RAM.
Thus, because hard drive speeds are so slow, you'll get lots of slowdown if it must do that a lot. The mroe RAM you have, the faster the computer can access what it needs, the faster your computer will run. Assuming nothing else is slowing it down more than the current RAM.
In Windows XP you can access Virtual Memory options from the My Computer Properties -> Advanced -> Performance -> Advanced. Don't really worry about it, though. The computer will handle it on its own, really.