This is a pretty technical
idea to do with memory systems
stuff. Brace yourself.
Basically, in a regular computer system, you have a stinkin' fast CPU, and a lump of memory. Silicon chips generally can run at extremely high speeds internally (for example the 1Ghz AMD Athlon CPU), but there are a host of engineering problems with getting the high speed signals (all the little 1s and 0s that whizz around and make everything work) off of the chip (i.e. out of the physical plastic package the silicon die is glued inside) and out into the big bad world of the circuit board without them getting all screwed up.
There's no problem if the signals are switching relatively slowly (signals that change at under 100Mhz are not very difficult to handle), but once you get into the hundreds of Mhz the poor things are going so fast that they tend to crash wildly into each other and generally get very confused before they get to the other end of the piece of wire that's taking them where you want them to go. Unless you design everything just right you just get garbled signals.
Ok, so if you want to connect a big lump of memory (i.e. 128Mb of RAM) to a fast CPU, one of the largest problems is in getting the wires between the chips to work properly at high speed. One of the options currently out is called RamBus, and it is basically a very cunning engineering solution to the whole 'fast signals down long bits of wire' problem, although even then it can only handle speeds up around the 500Mhz mark (and, clever as it is, it has it's own drawbacks).
The other solution, as used in the PS2, is simply to make a single piece of silicon that's large enough to incorporate both the CPU(in the case of the PS2 graphics system, it's the GS rather than a CPU - same idea) and the DRAM that you want it to talk to. It's like having them lying in the same bed groping each other rather than living in different towns having weak sauce phone sex. It's great, but it's difficult (read: expensive) to do, and it limits the amount of DRAM you can put on the chip; hence the PS2 having only 4mb of video memory.
Incidentally, the new Nintendo Dolphin is rumoured to use a different flavour of the embedded DRAM idea.
Mmkay? End of techy rant.