The "page file" or "swap file" is what Windows uses when it runs out of RAM. Now mind you, on a system like yours you won't often run out of RAM in the course of daily use.
Here's how it USED to work. It used to be that the machine had 4MB or 8MB of RAM, and it was easy to fill up that much RAM with programs or data. When the memory got full, Windows would "swap" or "page" some of it out to the hard drive. Windows kept track of which parts of RAM were written to the hard drive and which were really in RAM, and if a program needed the part that was on the hard drive, Windows would put it back into RAM.
As you can imagine, this was much slower than actual RAM, especially with old-style hard drives.
It still is. But it's also a smarter process now - the least useful stuff gets swapped out first. And you can often still fill up even a gigabyte of RAM with data if you're playing Doom3 at high resolution.
Now, does it make Windows "faster"? No, but if you don't have the swap/page file, you'll just RUN OUT OF MEMORY and the machine will crash.