It's the maximum amount of RAM you can use to cache textures. Modern video cards have so much RAM you might not even use it, but some programs check to see the setting before making adjustments for it. As such I've found it best to set this at 128MB, and that was through extensive testing.
<font color=blue>Only a place as big as the internet could be home to a hero as big as Crashman!</font color=blue>
<font color=red>Only a place as big as the internet could be home to an ego as large as Crashman's!</font color=red>