In general, maximizing the RAM is a good option for old PCs.
Less general: having 512 MB of RAM is the absolute minimum these days.
Using Windows XP, firefox and OpenOffice is most of the time enough to use all available RAM.
How to find out if you need more RAM
Open up the Task Manager (CTRL+ALT+DEL), and check the RAM usage.
If there is not much free RAM left already, you really need to upgrade RAM.
If this is not the case, start a couple of programs you might want to use (at the same time).
If you still have a lot of free RAM left, then you don't need more RAM.
If you say your machine starts lagging, then you quite probably need more RAM.
RAM only makes your computer faster if it is used. If your system uses 2 GB of RAM at maximum, 4 GB will not make it any faster.
However, if you have 512 MB of RAM and your programs would need 1 GB, then you start swapping/paging.
That is: part of the Memory is written and read from hard disk.
As the hard disk is a lot slower excessive swapping/paging can bring the whole machine to a crawl.
So if you are out of RAM often, then more RAM is the first thing you should upgrade on your machine (or try using programs that use less RAM).