a ok that makes more sense, the RAM on a video card is used to store texture data witihin a game so the GFX can have quick access to that data rather than use the RAM in your motherboard.
Theres only a few games i can think of which will utilize a full 512MB on the GFX the most recent being Quake 4, it is recommended that you have at least 512 on the GFX when running Quake 4 in Ultra mode beacuase in this mode the game uses uncompressed Textures and therefore needs more memory to run.
my knowledge on this is limited but im sure AI and physics calculations will be stored on the video card as well. System memory is really only there for a backup when the GFX RAM is full it will use the system memory which is slower
in short the less transactions to system memory the better because GFX memory is faster then system memory. More GFX Ram = less transactions