Hard drives can be slow, some monumentally slow. Even with substantial amounts of RAM, this will make for slow loading of applications, saving of files, etc. This is important, as many apps cache files to the hard drive, requiring many small writes, which will impact general performance.
And 3 GB of RAM is low for Windows 7. Just having a browser open along with one or two other apps (like a music player) can use up whatever Windows doesn't need for itself. I find that even 4 GB is the bare minimum for my use these days.
So, when all the RAM is used, Windows will turn to the hard drive as virtual RAM. That means the OS will kick stuff out of real RAM & write to the hard drive. Depending on how much RAM your apps need, this can result in frequent slowdowns.
And if, for some reason, your hard drive (or other hardware in your system) is slowly becoming unhealthy, things get even slower as error correction kicks in. While 1 reallocated sector isn't terrible, there may be other things the hard drive is having to compensate for on the fly.
But the front-facing issue is probably just a lack of RAM.