In modern operating systems, including Windows, application programs and many system processes always reference memory using virtual memory addresses which are automatically translated to real (RAM) addresses by the hardware. Only core parts of the operating system kernel bypass this address translation and use real memory addresses directly.
Virtual Memory is always in use, even when the memory required by all running processes does not exceed the amount of RAM installed on the system.
This Microsoft Knowledgebase article explains processes, memory limits, pagefiles, and the difference between the different counters in Performance Monitor.
RAM, Virtual Memory, Pagefile and all that stuff [Microsoft KB]
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