Windows reports less memory than installed
In most cases, it is likely that you are using a 32-bit operating system.
32-bit operating systems only support up to 4GB of RAM. A portion of the upper memory range is reserved for various system resources, and when 4GB or more RAM is installed, 32-bit versions of Windows or other 32-bit operating systems will report the usable amount of memory with the reserved portion excluded from the total amount reported. The amount of reserved memory will vary depending on the hardware and system configuration. For example, a PCI Express card like a video card will require a certain portion to be reserved by the system. The more hardware that is installed, the greater the amount that will be reserved for system resources. Thus, systems may report anywhere from around 2GB of RAM to around 3.5GB of RAM when 4GB or more RAM is installed.
Here are some links on the Microsoft Support site discussing the 32-bit operating system limitation. Further information can be found by querying Google (or other search engine) for "windows reports less memory than installed".