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It means that you've installed apps and data to the limit of the device. If you continue to use it, you will either find you are unable to save data or install new apps, or it will become unstable.
You can:
1.) remove apps and data you don't want/use
2.) Move some apps to the sd card. Go to menu>settings>applications>manage applications and click on each app. The ones that can be moved will have a button that says 'move to sd card'.
3.) Root your phone and remove some of the carrier apps that you don't use being very careful to make sure it's safe to do so before you cripple your device.
4.) Flash a custom rom that has better memory optimization.
5.) Get a new phone with more memory.
I don't mean to sound like a wise guy, but many people find the last option the most palatable after considering the other options.