Update: As promised, we have the second part of our memory guide for you today. Dig in!
Protected Mode operation
For backwards compatibility, all X86 architecture processors must be able to fully run 8088 software, as established, this became known as "Real Mode" operation. When running in "Protected Mode", the processor was basically unleashed, and allowed to operate at its full potential.
In protected mode, the CPU is capable of addressing all physical memory at its disposal up to its addressable limits (16MB for the 286 and 386 family). When operating in protected mode, the operating system is responsible with managing all memory, each running program is allocated a certain amount of physical memory based on it's needs, but is made by the OS to think that it has full and unlimited access to ALL of the system's memory.
It's the operating system's job to "protect" each program from others in memory, hence the name "Protected Mode". Memory usage is further managed by the use of "Virtual Memory", which is specially managed hard drive space that the operating system uses to emulate physical memory. Running programs are completely oblivious to the use of virtual memory as it is controlled by the operating system to ensure that whatever data program needs is always available for it, while swapping out unneeded data to the disk to free up physical memory for other programs to use.
The next step
While the 286 processor introduced this new protected mode operation, there were issues that prevented it from working efficiently in this mode. The system required a hard reset in order to switch from protected to real mode operation. This problem was later solved with the newer 386 processor which was capable of switching between real and protected mode operation without a reset of the system. The 386 also introduced a new mode of operation called "Virtual Real Mode", or what we commonly call a "DOS Box".
The 386 was capable of running several real mode sessions within protected mode operation, allowing it to emulate the operation of several computers at once. As such, business users could run several of their DOS programs without having to shut down Windows and run each program one at a time. In reality this did not work quite as well as it sounds, many a user has spent endless minutes staring at the spinning hourglass, but it worked well enough at the time.