Each 32 bit process gets it's own 32 bit (4GB) virtual address space.

The 4GB-X relates to the physical memory.

The virtual address space is split up into pages. These pages are mapped to either physical memory or virtual memory on disk. If a process tries to access a memory page that has been swapped out to disk, the process pauses while that memory is loaded in (and possibly some other page is stored out).

So although each 32 bit process can access a total of 4GB of memory, that memory won't all be physical memory, some of it will be virtual memory. So you have lots of processes each with a 4GB address space all running in a machine that has less than 4GB of physical memory.

Edit: It occurs to me that I've diverted myself into irrelevant minutiae. Suffice it to say that:
  • The /3GB switch will not liberate any of your physical memory and may harm performance.
  • Moving to 64 bit will not help unless you have more than 4GB of physical memory.