Think of the page file as a notebook you take to class. You write down all the things you want to remember, but can't store just yet cause your trying to keep up with the class and all the info that is coming out. It's a "long term"(in perspective) storage location for the fastes part of your machine. The page file takes a load off the memory so that it doens't need to process as much data. if it needs somthing out of the page file, it's faster to get it from there then to try and get it from the source.
Just like the notebook, the notes are there to remind you of what you were learning, so you can look there before going back to the professor(i.e. hard drive)
The reason the Page file is used, and in your case, it might be a misnomer, is to help the system work faster. Now this isn't alwasy used, but the space is allocated none the less. When you start up the system, your page file should be allocated out to whatever size you specify, or the machine decides.
The thing about it is this... in windows xp or 2k they are 32bit systems, meaning they can only addres 4gbs of memory. That includes the Page file. So if you have 2gbs, and have a 2gb page file, that is the maximum amount of memory your computer can handle. Optimumly, the page file and ram is never larger than 2gbs, unless you have more than 2gbs of memory installed. Then the page file becomes unneeded.
This can stir an argument, but simply put, your machine will run fine at 2gbs memory without a page file. In cases like that, the page file is just used for overflow, but you shouldn't reach that point anyway. If you install 4gbs memory, your machine can't even use the page file, as it's addressable memory is full.
hope that helps a little...