The extra memory is called Flash ROM. The operating system and the applications that come with your Palm Pilot are stored in ROM. Databases and anything you install yourself are stored in RAM. The stuff stored in ROM is permanent; even after your batteries die and everything you've got in RAM is gone, you've still got your datebook and calculator applications, held safe in ROM.
A Flashy Answer to a Palm Pilot Memory Shortage
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After a year with a Palm Professional running with
one meg of RAM, the 2 megs in my new Palm V
seemed downright luxurious at least for the first
week. Soon I had just about the same lack of free
memory that I'd had before. Fortunately, my Palm
had a big chunk of free memory I didn't know
about, and with Brayder Software's JackFlash or
TRG Products' FlashPro I could get at it.