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Leopard will not increase the limits of memory on a 32bit system. Remember leopard also has 32bit and 64bit binaries included, depending on the system it is loaded on. Alot of people think that if you have a 64bit system is it faster than a 32bit system. That is not the case. You just have access to more memory in a 64bit, which some people feel is faster.A 32-bit OS can only address a certain amount of memory - so, if you were running one and you had 4GB installed, I think it would only actually "see" 3GB. But in Leopard that won't be a problem as it's 64-bit inside and out.
So, some genius came up with the concept of "virtual memory". Virtual memory is a space allocated on your hard disk that the computer "pretends" is real, physical memory. It's great because you never run out of memory and have to stop working or close some programs, but you have to realize that your hard disk is several orders of magnitude slower than real, physical memory. It's like the difference between going somewhere on a bicycle and flying somewhere on a plane.
This is where the performance issues come into play. If you don't have an adequate amount of physical memory, given the OS needs and the programs you routinely run, your computer will constantly be dipping into virtual memory. It will shuffle certain things in and out of VM, trying desperately to maintain optimal performance.
virtual memory is just the fancy term for swap space and paging.