Well, to me the memory usage looks normal. You have 1 gig of ram and linux is 'using' 800 meg of that and 234meg is untouched, even by cahce and buffers. Linux will always try to use all available ram. Any ram not used as application memory usually gets used as cache and buffers, so linux is likely to 'use' that other 200meg as it goes along.
The second line gives the memory usage - buffers - ie so you are using 362meg and have 673meg free. This gives 'real' memory usage if you like.
The last line is swap. You are not using any of the 2 gig of swap (you probably don't need 2 gig swap, but doesn't matter.) If you start using swap, especially in a system with a gig of ram, then you know you have problems.
So that looks fine. Not sure why game would be jerky, but watch what apps are running in the background when playing game. Some system monitors, like KSysGuard, tend to make the game jerky and slower... Maybe the gnome monitor does as well, don't know. I can run the little kde memory applet on my bar okay when playing games...
BTW this is my free result as a comparison. Tho this box has only been up a couple of days. Currently only running KMail and Firefox and a few other small apps. I have more swap than I need at the moment too, but it's a leftover from compiling counterstrike maps
Note that all the ram is 'used', but half in cache and buffers.
[amosf@shiva rpms]$ free
total used free shared buffers cached
Mem: 515288 507224 8064 0 36820 200468
-/+ buffers/cache: 269936 245352
Swap: 1129384 1676 1127708