Up to a point, adding RAM (Random Access Memory) will normally cause your computer to feel faster on certain types of operations. The reason why RAM is important is because of an operating system component called the virtual memory manager.

When you run a program like a word processor or an internet browser, the microprocessor in your computer pulls the executable file off the hard disk and loads it into RAM. In the case of a big program like Microsoft Word or Excel, the EXE consumes about 5 megabytes. The microprocessor also pulls in a number of shared DLLs (Dynamic Link Libraries) - shared pieces of code used by multiple applications. The DLLs might total 20 or 30 megabytes. Then the microprocessor loads in the data files that you want to look at, which might total several megabytes if you are looking at several documents or browsing a page with a lot of graphics.

So a normal application needs between 10 and 30 megabytes of RAM space to run. On my machine at any given time I might have the following applications running:

A word processor
A spreadsheet
A DOS prompt
An email program
A drawing program
3 or 4 browser windows
A Fax program
A Telnet session

Besides all of those applications, the operating system itself is taking up a good bit of space. Those programs together might need 100 to 150 megabytes or RAM, but my computer only has 64 megabytes of RAM installed.
The extra space is created by the virtual memory manager. The VMM looks at RAM and finds sections of RAM that are not currently needed. It puts these sections of RAM in a place called the swap file on the hard disk. For example, even though I have my email program open, I haven't looked at email in the last 45 minutes.

So the VMM moves all of the bytes making up the email program's EXE, DLLs and data out to the hard disk. That is called swapping out the program. The next time I click on the email program, the VMM will swap in all of its bytes from the hard disk, and probably in the process swap something else out. Because the hard disk is slow relative to RAM, the act of swapping things in and out causes a noticable delay.

If you have a very small amount of RAM (say 16 megabytes), then the VMM is always swapping things in and out to get anything done. In that case your computer feels like it is crawling. As you add more RAM you get to a point where you only notice the swapping when you load a new program or change windows. If you were to put 256 megabytes of RAM in your computer the VMM would have plenty of room and you would never see it swapping anything. That is as fast as things get. If you added more RAM it would have no effect.

Some applications (things like Photoshop, many compilers, most film editing and animation packages, etc.) needs tons of RAM to do their job. If you run them on a machine with too little RAM, they swap constantly and run very slowly. You can get a huge speed boost by adding enough RAM to eliminate the swapping. Programs like these may run 10 to 50 times faster once they have enough RAM!