That is correct. The memory management routine built in to Windows 7 is an improvement to the routines in earlier versions of Windows. Unused memory is wasted memory, and in order to speed your system up, Windows makes use of the free space to store data which makes your system run faster. When called for, this data is then retrieved from RAM instead of the much-slower HDD. Should you run an application (including games) that require this memory space, then the management routine relinquishes that space and it is made available for your application.
For example, here is mine. I am running Windows 7 (64-bit) with a single instance of IE8 (64-bit) with 2 tabs and Office Outlook 2007 for my email.