I have a Sony PRS-505 and I don't know how much memory it has, but whenever I hook up to Calibre, I add books until it won't take any more -- I keep it as full as I can, generally around 200 books. I use the stock lists or tags to find the books I want to read next. I don't know what I'll do when I finally so few books TBR that I'll be able to load them all without consulting file sizes.
I also have a Kindle (3G), but I don't keep nearly as many books on it as I do my Sony. I mainly have either books that I bought for $0.00; if I want to read a particular book on it, I email it to myself. I haven't figured out a good way to sort and find books, but at the moment I choose either a book from the last page (currently page 5) or the latest that I emailed myself. I use my Sony when I'm looking for a particular title.
I do not keep books on either device that I am not planning to read soon. I delete/archive as soon as I have read them. My libraries are stored elsewhere.