Really, whats a few nanoseconds between friends?
But you are right about those old days. In college in 1995 I got a Mac 7200 that had 8 MB of RAM. You could not even open MS Word without getting an insufficient memory problem. So we all shared this old program (loaded by a couple of floppies) called RAM Doubler, which I suppose swapped memory to the hard drive. This was needed as the computer was handicapped right out the box unless you spent a few zillion $$ on 8 MB more RAM. But those old boxes were fun to upgrade!
Connectix RamDoubler (around $50, for those who bought it) was an extension in the System 7 days that did the following:
1. Reclaim memory that apps reserved (recall that in System 7, you had to manually reserve RAM for applications. Reserve too much, you wasted RAM; reserve not enough and that app would get out of memory errors and you could lose data). This was a horrible system from start to finish, and was an embarrassment for Apple; the Amiga (with good multitasking released years before) walked all over concurrent MacOS for multitasking.
2. Compress RAM. Does the obvious - use the CPU, slow as it was, to claw back some usable RAM.
3. Then finally it fell back to virtual memory. Assuming you had an MMU (68030+) you'd have memory management and the ability to page, and you could use virtual memory.
This is exactly what we have now (well, there's not as much a concept of #1, but the other two apply).
The downside was the entire OS didn't have memory protection - apps could walk all over each other; one crashed and they all did (or could). Contrast that with modern MacOS, released in 2000 or so, which fixed all of this, so a userland app can't take down the entire OS.
At no point in this was it accurate to say that something fundamentally changed with respect to running "from disk" vs. "from RAM". From System 7 onwards, with a 68030 or higher, virtual memory was part and parcel of the expected experience with the OS. With MacOS X 1.0, it became an even more important part, the MMU was fully utilized to protect the rest of the system, and .. still ... RAM is used to run applications, with a fallback to disk as required.