For more than 3GB, after setting the 3GB switch, it means u can set memory allocation to 100%. The extra 1GB will be used for system resources. Limit is still 3GB for CS2.
Exceed that and it uses scratch disk, not the 'extra'. 1GB
actually, at least on my comp with 4GB RAM, the limit is 2.7GB...not 3GB...I think to exceed that, you would need a 64bit OS...and with WinXP 64bit and OSX, I remember reading on Adobe's forums that the accessible RAM is still up to like 3.6GB, but that is to do with PS CS2 restrictions...CS3, probably with 64bit support, should do better...coming soon...Adobe is scheduled to make revelations at Photokina later this month