This has been discussed a couple of times, remember the search feature is your friend
It basically works like this, the phone has 2 types of memory:
Storage: This is where programs can be installed to. It can also get filled up with temporary files, Pocket Internet Explorer cookies and caches, etc. Keep an eye on these temp files, delete them and clean up often.
Program: This is your RAM. The more apps you have open at a time, the lower it will go. If it goes to low, consider closing some programs.
Your SD card will basically be an extension of your Storage memory, yes, you can install some programs and run them from the SD card.
A main rule of thumb is that any program/plugin that runs on your Today screen should not be installed on the SD card.
Hope this helps...