Windows Virtual Memory?

When there is not enough "real" (i.e. fast semiconductor RAM) available, Windows swaps chunks of data to and from an area of your hard drive - this is called 'virtual memory'

Assuming you're running XP, go to Control Panel -> System, click on the Advanced tab, then select Performance settings.

Click on the Advanced tab of the Performance Options form (that you should now have up), and you can click on Change in the Virtual Memory frame. You can increase the size of the virtual memory here (assuming you have enough room on your hard drive).

WARNING - if you're not sure what to do next, don't panic and start clicking anything in sight. Just close the windows using the X box (far right of the title bar). Don't apply any changes unless you're confident you've got it right.

The fragmentation of the files on your HD has nothing to do with virtual memory space.

It's very simple. Your RAM memory is limited in size. If your windows applications use it up by opening large documents, videos, photos, et cet, then at some point the system will need to say "..wait a sec - hold on - no more room in RAM...Let me take the OLDEST stuff here, and write it out to the HD for a second or two to make room in RAM for this new guy.." The problem comes with ill-behaved or poorly written programs that don't release their RAM allocations after they're finished with it.

Analogy: RAM is your bedroom closet. If you have it 3/4ths filled with clothes, and then go out and buy another 20 shirts and 30 pairs of pants, and try to stuff them all in the closet, they won't all fit. So you haul some of the older stuff out of the closet for a moment, and throw it on the bed. The bed is now your virtual storage. You decide to throw away the Nehru Jackets and bell bottoms, so that leaves room in your closet for the junk on the bed to go back in the closet.

As noted, the problem is large memory-footprint programs that don't release the memory after they've used it, e.g. they leave their Nehru Jackets hanging in your closet long after they've left the building..

Considering that most modern HD have many dozens of times more capacity than your RAM, the amount of HD space devoted to virtual memory is trivial. Everybody has a different idea, but the best practice is to set aside a PERMANENT virtual memory space of from 3 to 5 times your actual RAM size.

So if you have 1GB of RAM, make a 4GB virtual file. That will take up all of 2% of a 200GB hard drive.

What can sometimes slow your computer down is the need for the OS to constantly make a LARGER virtual storage file, because it's too small to begin with. This is where you get that message noted by the OP.

Buying more RAM is good, if you have the expansion room for it, but a PC with even 2 or 4 GB will need virtual storage at some point. Chances are, if you have that much RAM, you've also got a huge HD, so allocating 2% or 3% of it will hardly make a difference.

In re: Fragmentation, I'd bet that a zillion times more "time" has been spent waiting for a de-fragmentation process to finish, than the "time" saved by defragmention. Think about it - Ok, you've got a fragmented file. It takes the HD a whopping 500 milliseconds longer to collect all the fragments. Lets say you've got 100 of such files on your HD. That's an extra 50 seconds of time, to collect every single one of them. Let's even say you have to collect these 100 files 10 times a day. That's a huge 500 seconds. When you can defragment your HD in 8.3 minutes or less, you're ahead of the game. If not, you're losing more time waiting for the defragmentation to finish, than you ever would waiting for the fragmented files to be collected.

This USED to be a bigger problem back in the days of much smaller and much slower HD - a 20 mb HD back in the mid 80s or even a 100MB HD in the mid 90s, using the FAT16 or FAT32 file allocation scheme, could see significant benefits to monthly defragging because of the RELATIVE amount of space it could reclaim.