"Memory used by MATLAB" is internal memory used by the MATLAB interpreter itself, as opposed to memory allocated to user variables. Low is good for "Memory used by MATLAB" as the memory used by MATLAB itself is not available to user variables.
With your system set up as it is, you could use individual arrays up to 1 gigabyte, and more than 2 gigabytes total between all of your arrays.
To speed up MATLAB, what you should do is reduce the Swap Space you have allocated to the system. Especially if you set the swap space to 0, everything in the system will run in RAM, which would be faster than going to the hard disk. Of course if you do that, then you will only be able to use much smaller arrays than you can use now, since the operating system and other programs will be using up some of your 3 Gb physical RAM.
What would really be recommended is to add more physical memory to your system. You might need to also switch to the 64 bit of MATLAB to take best advantage of the extra memory. But if you are using Student Version then I seem to recall there is only the 32 bit version of that on MS Windows or Linux.
