Application memory running low is more likely to do with a memory leak in the application. If your OSX machine has 256MB RAM or more, then this is very likely the cause, not OSX. If you have less than this, then it is time to get more RAM. The SWAPFILE will expand as much as needed, but for it to get so large as to be troublesome could only be a badly memory leaking app.
By default OSX has it's SWAPFILE on the boot hard disc &/or partition. It uses a minimum of 80MB disc space, though this can fluctuate to as much as 500MB in some unique cases, though this is uncommon, and is usually a sign of poor coding in the app responsible (eg Suitcase 10 storing a large number of it's font catalogue previews).
You can relocated your SWAPFILE to a dedicated partition or secondary hard disc for improved performance, both in terms of reduced file system fragmentation, and SWAPFILE access speed. I have a dedicated SWAPFILE partition on my single hard disc, and I get about a 5% performance boost over the standard setup. This may not sound like much, but it is noticable. It can improve performance by as much as 20% if relocated to a dedicated secondary hard drive.
If you want to do this, a good tool for the job is called SwapCop, which can be found on Versiontracker.com. The app is easy to use and has clear instructions and tips.
NOTE: to re-partition your hard drive you will need to wipe your hard disc, so this is something best planned before instaling your OSX operating system.
