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There's a difference between "memory" and "storage". Think of it in computer terms. "Storage" is the space on the hard drive, and "memory" is the amount of RAM the computer has. Storage is more permanent than memory.
With a smartphone, like the Fascinate, "internal memory" tends to be a misnomer made by the marketing department. This is actually referring to the internal storage available to be used for app data (program files), pictures, music, video, etc. (See screenshot above). Basically the same things you put on your computer's hard drive (C:\ or other drive). This storage is generally used if no SD card is included or added to the phone.
The RAM or memory is used by Android OS and running apps when the phone is powered on. RAM is only used by an application when it is running. When the app is closed (and is not intended to run in the background), it will no longer use RAM, making more available for other apps and services. This is what started the task killer debate originally, but that's an entirely different can of worms.
In the case of the Fascinate, the "internal memory" is actually flash memory (like a thumb drive or SD card) and has some of the 2GB dedicated to be used as system storage that is inaccessible unless the phone has been rooted (yet another can o' worms).
Hope this clarifies things or at least confuses someone... j/k!