yeah, but, hrmmm...
Sure... you CAN run OSX + additional apps with only 256Mb of ram....... no problemo...
The thing is, you WILL get the "virtual swap" action kicking in pretty quickly, and that will slow the whole works down (as that requires both CPU attention and delays during read/writes of the 'virtual ram' swap files from/to the hard drive)... So, yeah, you can run those with limited RAM, but you simply can't run the OS + intensive apps *at peak performance* without adding more RAM...
When you bring total RAM up to 1 ~ 1.5 Gb , you will get noticeable improvements in performance across the board, for a few reasons... less swapping (lighter on CPU), more app modules in RAM (faster), no waiting for regular file swaps.....
Beyond 1.5Gb, you won't really see additional performance specifically from adding more RAM, unless you work with vast files (video editing anyone?) which could require virtual swapping again....
And, Adam Jay is right about the "performance setting"...... with the "Automatic" setting, even when using a demanding app, the CPU will throttle itself down during any "in-between" cycles, to conserve power and reduce heat..... the act of throttling itself requires a few cycles, so adding a bunch of "up/down" actions, will end up 'stealing' performance...... it's not noticeable with most everyday apps, but can be quite apparent with our favorite music-moshing apps...
Switching the performance setting to "high" will turn off throttling.
(A caveat however: that is only true unless and until the CPU starts to overheat... then it will start auto-throttling again, regardless of setting, until the heat comes back down. It doesn't take long, generally, but can be a spoiler when you're running a Set at 93% and the throttling suddenly kicks in...!)
Anyway, that's mostly how it works, as far as I understand it.... (hey, was that a disclaimer?

)
peace,
tribalogical