Virtual memory is hard drive space that the operating system uses to mimic RAM. When you're using all your RAM, or programs are using your RAM haven't been actively used for some time, though are open, they are put into virtual memory to free-up more RAM on your system for the open apps that you are using.
Virtual memory, also known as the "paging file" can be set under the advanced options in WindowsXP by doing the following. Start > Right-click "My Computer" > Properties > Advanced Tab > Under "Performance" click "Settings" > Under "Virtual Memory" click "change".
This allows you to specify the minimum and maximum amount of hard drive space Windows can use for virtual memory (although it needs a set amount to work correctly anyway). It is recommended that the maximum be set to approximately 1.5 times the amount of system RAM you have installed. Clearly, yours is set too low, and Windows is simply enlarging the amount it uses when it has to. Setting the current figure higher yourself might help prevent similar messages in future.
However, since your hard drive operates at a mere fraction of the speed that your RAM does, when accessing data stored in virtual memory, your PC may slow down considerably. Therefore, if you find yourself using RAM hungry applications regularly, or many apps at once, you might want to consider upgrading the amount of system RAM you have, as this will significantly increase system performance in these situations.