The topic of Virtual Memory can be confusing for some folks, but I'll try to explain it as best I can (starting with the basics).
RAM, or, "Random Access Memory", exists in every computer. RAM are actually pieces of hardware (chips) and are used to store temporary data. The temporary data is then used for computation by the CPU (Central Processing Unit) at a later time.
So, for example: when you double click to view a movie file on your computer, it is first loaded into RAM (a chunk at a time), then moved to the CPU (Central Processing Unit) where it is processed and decoded, and eventually output to the screen and sound card. And voila, you have your movie.
RAM is also known as "Primary Memory". Comparatively, Virtual Memory (also known as Secondary Memory or Page Memory) is used in place of Primary Memory, but only if there is no Primary Memory available at the time.
Since Virtual Memory is stored on the hard drive, it is significantly slower than RAM; therefore, virtual memory usage should be avoided whenever possible. To compare: hard drive speeds are measured in Milliseconds (MS) where as RAM speeds are measured in Nanoseconds (NS). Generally speaking, the more RAM a computer has, the faster, or "more optimized" it is -- especially when switching between tasks.
If you are constantly getting the message that your system needs to increase Virtual Memory settings and you're not overworking the PC, I would suspect a memory leak. This is, of course, assuming that you haven't played with your virtual memory settings in Windows (it's best to leave it alone or restore to default).