Taken from the VMWare forums, specifically a post from Dave.
There seems to be a problem with ESXi in the way (that’s my opinion) it handles memory for virtual machines. If you look at Configuration \ Memory you will see memory split between system and virtual machines. The virtual machines number includes the memory that the VMs will actually use, plus memory overhead to manage the VMs.
The Memory Reservation on the Resource Allocation tab reflects the portion of memory that ESXi thinks it can give to VMs (i.e. Virtual Machines memory – VM memory overhead). With ESX regulary that number is around 200 MB but with ESXi its up around 700 MB. Not such an issue when you have 16 GB, but it is with 1 / 2 GB. To free up some more memory
1) Go to Configuration \ system resource allocation
2) Click on advanced.
3) Find the VIM object and change the reservation from 512 MB to 192 MB. (see image).
That’ll impact the Memory Reservation number of the Resource Allocation tab (give it a minute or two).. You can probably go lower that 192 (you may need to modify reservations on sub-objects. I wouldn’t recommend this on a production system.