Virtual memory is hard disk space that Windows uses when physical RAM is over committed. This space is a hidden file called pagefile.sys and is maintained by Windows. When XP is installed, Windows computes the minimum and maximum size of the pagefile based on your physical memory( Min= 1.5 * RAM) (Max = 3 * RAM). Windows uses the pagefile to page programs and data in and out of RAM when need for actual execution.
You can increase your pagefile by going to ControlPanel-->Advanced-->Click on Settings in the Performance Area-->Advanced-->Change.
If you haven't run a defrag lately, now would be a good time. You can also monitor MSCONFIG and see what programs are being started.