That frees physical memory - DRAM - for use by active programs. In a virtual memory OS - all consumer/server OSs today - physical memory is extended by using mass storage - disk or SSD - to store inactive or little used memory pages. The machine would boot and work well - usually - with one app at a time, but open a few Safari tabs, Mail, a media player and a word processor and switching apps gets s-l-o-w. For most of Mac history using the standard memory configuration meant a world of hurt.
