it's only a matter of memory usage reporting, an issue that appeared on windows vista.
contrary to XP, memory used as disk cache is included in the total.
279MB of memory is used for cached, so your real memory use is 502 - 279 = 223MB. a good figure for the latest OS.
on linux I can look at either way of counting, so my system is using 1565MB right now, or 1139MB without the cache.
the OS can free up the cache and use the memory for applications instead when neeeded. though an amount of disk cache is always nice to have.
you should probably upgrade with a stick of compatible memory but don't hurry over it if you do lightweight enough browsing or run very old games.