After working on a project for about 2 hours I receive a warning window telling me to become very careful because Premiere is running out of memory. What does that mean?
There are two types of low memory warning that you can get. One refers to a shortage of system memory, the other refers to a shortage of application memory. You aren't having a shortage of system memory. You're running low on application memory. Application memory is not the same thing as RAM. Application memory is also known as virtual memory. It resides on disk until it is needed and the OS transparently loads portions of it into RAM as needed.
In a 32 bit OS like you are using, an application can address 4GB of memory. However, all of that is not available for the application to use for it's own purposes. By convention, 2GB is reserved for the application's use and 2GB are reserved for use by the OS and system hardware. You are getting the warning because your application is coming close to the 2GB limit.
I don't know why your project is using that amount of application memory. You could have a complex project, or you could be encountering a memory leak. A memory leak is a bug whereby memory is allocated but not all of it is released when the application is done with it. If it is a memory leak, closing Premiere Elements will release the memory and you can begin with a clean slate again when you restart the application. But, memory usage will build up again as you use the program. If it is a memory leak, you may want to periodically save your project and restart the editor.