Thats because 32 bit systems can see only 3GB of ram.
If you used a 64 bit edition, you could use all of your ram.
32 bit systems can see and address ~4GB of ram. 500MB to 1 GB may be unavailable however
due to system overhead.
The limit for 32 bit OS's is a mathamatical limit
Here’s the math for 32-bit systems:
2 to the 32nd power = 4,294,967,296 bytes
4,294,967,296 / (1,024 x 1,024) = 4,096 MB = 4GB
Here’s the math for 64-bit systems:
2 to the 64th power = 18,446,744,073,709,551,616
18,446,744,073,709,551,616 / (1,024 x 1,024) = 16EB (exabytes) ~16 Quintillion bytes
To use a 64 bit OS your hardware must be 64 bit (processor and motherboard).
Even with a 64 bit OS system overhead will still use some of your installed ram.
A 64 bit OS can address more that 4 GB.
Many systems today have more than 4 GB of installed ram
as well as coming preinstalled with Win 7 64 bit.