Why do I have to restart?

you have a CoreDuo MBP, so startup takes ~20 seconds. I'm sure that's not going to kill you

 

general over time you ram can get messy and fragmented. Also you page files can of grown quite a large and a restart allows it to be dumped. A lot of it could just be the ram is only being used at 5% but the 90+% you where using is just not cleared out yet. You computer says it free but it still being cleared out of the OS and what not. Restart just completely wipes it clean.

 

Sure is! It's in the Apple menu, and it's labeled "Restart"

The problem is that all code is faulty, none of it is 100% bug free, and even if the code is fine, the third law of thermodynamics will eventually introduce errors.
RAM has to be refreshed several thousand times a second. Combine that with even a very tiny memory leak in just one application, and eventually the system slows down. In addition, you get RAM fragmentation as part of this process (as mentioned by another poster)
The problem with dumping the contents of the RAM and refreshing them is that the operating system is loaded into RAM. Dumping the entire contents would just cause the computer to crash.
Another issue is caching. When the computer has been on for a while and you've opened up a lot of different applications, parts of these applications are stored in RAM or virtual memory even after the application has been closed. This is done by design so that the program will start up faster next time. The system will eventually clean that kind of cached data on it's own, but in the meantime, that memory won't be available to other programs. On the same note, sometimes due to bad programing, and sometimes just due to random errors, parts of programs will be still left in memory after they close.

As for software to clean all this up, I'm not sure about OS X, but there are a few such programs for Windows 9x. But even they only have limited effect, as they can't clean up what's being currently used by the system, and sometimes actually cause system instability if they try.

And in case you're wondering why a reboot fixes the problem: As mentioned above, RAM has be refreshed constantly. RAM is really a series of capacitors that store electricity for a very brief time. When the computer is on, it is constantly refreshing the capacitors that hold a charge. When you reboot the computer, power to RAM is switched off allowing the capacitors to complety drain, thereby thoroughly reseting all memory.

 

That is part of it, yes.