The point about VM versus installed RAM is not that you use VM, but that the capability to use 1GB of VM apparently collides with the presence of ~940MB plus in machines that were not conceived to have more than 768MB of physical memory installed.
You will also note that the next cab off the rank, the Beige G3, was limited to 768MB of installed RAM even after 256MB DIMMs became available, and before that to 384MB.
The PCI Graphics is quoted by Apple (in Apple Memory Guide, Jan 2001, the last issue of that Guide known to me) as having a software-controlled useable limit of 1GB of installed RAM and 1GB of VM capability.
By the time of the DA, the physical limit was 1.5GB in three slots, with the fourth slot disabled, but the VM max. was still quoted as 1GB. I'm using a DA/733 now, but I have never tested the limit of VM because I have 1GB of physical memory in it, and I see no point in using disk-slow VM when I have PC133 RAM instead. However, there is no quarrel between installed RAM and VM apparent, nor was there in any of the many CRT iMacs (2000-2002) that I own, so Apple may have re-engineered that part of the OS.
VM is always going to be software-controlled. There is no arguing, short of hacking the system code, with the inbuilt limit. If that limit collides with your physical RAM, you can circumvent the problem, but not wish it away.
de