Everything that is running on a computer takes some RAM. Booting a computer and not opening any programs takes some RAM, because Windows is running. Then when you open programs like internet browsers, antivirus software, games, etc... those each take some RAM to run.
A computer only has a certain amount of physical RAM (a computer from 10 years ago might have 256MB or 512MB, where a computer today will come with 4GB, 8GB, somewhere in that range). The computer will put information into the physical RAM first for the programs that are running. Say you have a computer with 1GB of RAM and you open programs that consume 800MB of RAM - it'll all be running from RAM. That's very fast, because RAM is comprised of memory chips that are accessed electrically. The access time to get to the information in RAM is very fast, and the chips run at high speed.
When the computer runs out of RAM, then it uses a portion of the physical hard drive to store the information that should actually be in the RAM. The computer will create a file on the hard drive to store this overflow of information, which is called a page file. Say your 1GB system has programs running that take a total of 1.4GB to run... some of it will be in physical RAM, and some will be in the page file. Since hard drives are typically a spinning magnetic disk, it takes much longer to access the information on it. Sometimes when you have way more stuff running on the computer than what can fit into RAM, you'll notice things start lagging a lot, the hourglass could appear in Windows, and the system could even completely freeze if you try forcing the system to do too much.
This has a lesser effect on systems that have an SSD for their hard drive, because an SSD also uses memory chips that are accessed electrically, rather than a slow, spinning magnetic disk. However the access time to get to information on an SSD is still slower than RAM, because the way it's attached to the processor is through a drive controller, not a memory controller.
Make sense?