RAM categories:
Wired: A type of Used block. These blocks cannot be paged out to disk under any circumstances. This includes the kernel and the memory manager, along with assorted other things. Most wired memory is declared at system bootup, though a few applications will declare some wired blocks while they are running. Paging out a Wired block would most likely result in a system crash.
Active: A type of Used block. These blocks have an active owner - they are assigned to some running process or application. However, they can be paged out to disk if need be. If the system runs out of less important RAM, it will start paging out Active blocks, starting with the ones that have not been accessed for the longest time. It the system runs really low on RAM and starts paging out Active blocks that were in use only seconds before, then your system will slow down visibly and the hard drive will get a workout.
Inactive: This could be called either Used or Free RAM, it falls somewhere in the middle. I'd call it a kind of Free memory, but utilities such as 'top' class it in the Used category. These blocks were previously owned by a process or application, and are known to still be identical to corresponding blocks on the hard drive. They were either saved to the HD at some point and not changed since, or were loaded from the HD and never changed.
Inactive memory serves as an intelligent disk cache: when blocks are requested from the hard drive, the system first checks to see if those blocks are still around in Inactive memory. If so, those locations are reactivated without bothering to load the data from the HD again. The use of Inactive memory in this way is why applications launch faster after the first time.
When the system runs out of Free memory, it first digs into the Inactive memory, reassigning Inactive blocks that have been sitting around the longest. In theory, you would use up all your Inactive blocks before any Active memory starts getting paged out. In practice, OSX appears to give a higher value to some Inactive blocks, perhaps blocks that have been reactivated in the past. I've observed some paging start before all the Inactive RAM is used up.
Free: These blocks have no value to the system, they are available for assignment. The system will try to keep a few MB free at all times for rapid assignment, even if it needs to page some stuff out. Having a few MB available for hot assignment makes the system feel much more responsive. After assigning those free MB, the system will replace them by paging out a few blocks in the background.
Used: Sum of Wired, Active, and (usually) Inactive RAM.
If you want to graphically watch overall system usage of each type, download
Memory Monitor and leave it running. Other people have other favorite utilities.
Your Activity Monitor is most likely set to show User Processes. Reset it to show All Processes, and you should see where the RAM is going. The Window Manager is a favorite RAM hog.
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