What is this memory all about anyway?

I'm not talking about my memory here.  What I refer to is the memory on my MacBook.
Before we left town I installed an extra GB of memory in both our laptops which we needed in order to upgrade to Lion.  2 GB is the max we can have on our old Macs which we bought in 2007.  They came with 1 GB.  Last night I saw in the App store a "free"  app called Free Memory. 

It monitors your memory in the menubar and frees memory with the click of your mouse.
After installing it I realized that I didn't understand what any of the memory meant.  If I only have 522 MB Free, how was I able to use my computer before when I only had a total of 1GB and what is that memory called Wired?
I searched to see what Wired memory was and found this blog posting
http://sg80bab.blogspot.com/2007/03/is-my-mac-using-too-much-memory.html

Then I checked the app that comes on the Mac in Utilities called Activity Monitor and it showed the same numbers as the App and also my details.  Firefox is the greediest of them all.

This might be interesting to add to my Dashboard too.
http://www.apple.com/downloads/dashboard/status/istatpro.html