Beware that not every 256MB SO-DIMM will work. In fact, probably a majority of them won't.
There is a long and horrible technical explanation for it, but... the short version is that the memory controller in the tray-load iMacs (which is also used in the Beige G3s and the "Wallstreet" and "Lombard" Powerbooks.) will only recognize 256MB SO-DIMMs if the addressing lines are arranged a certain way... such SO-DIMMs are often referred to as "low density". How do you recognize such a SO-DIMM? Well... if it has chips on both sides of it it's a good sign. An even better sign is if it has eight tiny little chips on each side instead of four. (There are SO-DIMMs with only four chips on each side that have the proper banking arrangement, but eight is a clincher. I don't think *any* single-sided 256MB DIMM will work.) SO-DIMMs which don't abide to the iMac's limits will either only be recognized at half capacity or fail to work at all.
This is important to keep in mind if you're trying to scrounge RAM from dead machines or other ad-hoc sources. In my junk box I probably have a dozen 256MB SO-DIMMs leftover from upgrading Powerbook G4-vintage machines that are useless in previous-era laptops. Frankly, the rule of thumb is if the 256MB SO-DIMM came from a machine that supports 512MB SO-DIMMs then it's probably useless. If you decide to *pay* for memory I'd recommend buying it from someone that specializes in old machines and will know what you're talking about when you say you need a "low density" module.
As for that old "384MB" limit that's tossed around, that refers to a time in which "tall" (two inch vs. 1.5 inch) SO-SIMMs were in circulation and only "tall" SO-DIMMs came in 256MB capacities. Only one slot on the iMac accommodates the tall SO-DIMMs, but unless you scavenge memory from an old Wallstreet-era laptop you're unlikely to run into such animals. The electrical limit is 512MB and every iMac should be able to reach it as long as you can find appropriate low-profile SO-DIMMs.