Kind of a newbie question but here it goes:
We ran into an issue where a VM was running poorly. Someone had set the memory allocation at 2 GB in the default Edit Settings window but we found there was another setting limiting the VM to 512MB in the Resources Tab of the Edit Settings view.
That brought up the question as to when is it proper to use the Resources Tab settings rather than the Memory Allocation setting in the default view of Edit Settings? This machine is not in a special resource pool.
I would suggest to implement Resource Pools for all the applications/servers/department/business units to dynamically allocate resources effectively with reservations and shares. I wouldn't use limits if you do not know the exact CPU/RAM requirements for a VM and will gives you problems to manage if you have hundreds of VMs in a cluster. I suggest you read VMware Resource Management Guide for details and how to effectively plan out for your environment but for best practices, every new server build starts with 1 vCPU and 1024MB and increase/decrease as needed and never over allocate if possible. VMware uses Transparent pagings, memory ballooning and DRS so effectively that you need to take advantage of.
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VMware vExpert 2009
iGeek Systems Inc.
VMware, Citrix, Microsoft Consultant