There's app memory, and then there's more generalized "memory" which would be more properly termed as storage.
There's only 128MB of app memory, and while no one seems to be able to offer up a definitive answer to exactly what all makes up app memory... It seems to include things like your OS, and any 3rd party apps you might install, along with a few other things. The value will go up and down depending on how you use your phone, so don't let yourself get too hung up on a number. Bigger isn't necessarily better.
And just a reminder, electronics are based on binary data, and due to the quirks of binary math, 1GB = 1024MB, 1MB = 1024KB, 1KB = 1024 bytes. So, I usually just subtract about 2 from the first two digits in a bytes free reading to get a decent ballpark estimate of what it is in MB. So 3.7 million bytes would be probably closer to 35MB. Just a FYI sort of thing. Always better to assume you have less of this than you actually do.
128mb of app memory? I didn't think it was that high. I usally have ~35mb, but have seen it as low as 17mb. I have wondered what causes it to go so low. The only thing that i did notice is that when typing email/txt it lags big time when memory is low.