Memory usage and optimisation questions

Explanation requested

[SilverLining]

I use quite a few applications simultaneously (including Eclipse and Photoshop), though would expect better performance with 2GB DDR RAM.

My memory usage is as follows:

Wired: 205MB
Active: 1.07GB
Inactive: 677MB
Used: 1.94GB
Free: 62.25 MB
VM: 22.16GB

1. If my inactive memory is so high (677MB), why is my free memory so low?

2. Is this because of inactive processes / stale memory?

3. Also, what is the logic behind 22GB of Virtual memory?

4. How can I optimise my Mac's memory usage.