RAM is just like a hard drive. Just like hard drive data is stored in RAM. The only difference is speed. Imagine RAM as a fastest storage device in world.
Working of RAM
Old computers used only 2 MB RAM. At that operating system and hard disk plays the role of RAM. If you launch a application, OS will fetch data and pass it to processor. The fetched data get stored in virtual memory as page file. The virtual memory has some limit which means you can open 1 or 2 application max and it take long time.
In current generation you can dump minimum 3 application in RAM. So multitasking is possible. As the data is in RAM it will be faster. Now you are limited to 2 GB beyond that operating system will utilize virutual memory which inturn will be slow.
Purpose of RAM
So the purpose of RAM is clear and its multitasking not performance. If you want to launch more RAM consuming software/tools/application you need additional RAM. Obiviously RAM is improving performance when considering multitaksing but for single application upgrade is not needed.
How I know whether I need RAM or not?
You can check task manager. You run all the app that you usually do. Check the RAM monitor. If it consumed all your memory then you need additional memory. For programmers who use database, development tools, even 16 GB won't be sufficient.
Then how I improve performance?
To improve performance you need to upgrade processor for data contents (programming) and video card (games, animation) for graphical content. Imagine you have 1 TB (1000 GB) RAM and your processor is Pentium 4 do you think the performance increase? So you need good processor. For video editing tools you need good graphics card.