WINDOWS 7 32 BIT HARDWARE RESERVED MEMORY IS VERY HIGH

This is unusual, but I must disagree with Ken.  I suspect this is a rather elderly system.  IF, Windows 7 has never been re-installed and IF it is the original hard drive, my experience has shown that a hard drive replacement ($50 to $100) and a clean re-install of Windows 7, will yield a dramatically improved system.  I've done this literally hundreds of times and it always results in an amazing improvement.  Assuming the system is otherwise in good condition, it will perform as well as and likely better than when it was new.

Windows Update is the messiest part of the re-install.  Follow my process (used hundreds of times) and I can virtually guarantee very good results:

https://www.askwoody.com/2019/canadian-tech-how-to-rebuild-a-win7-system-with-minimal-snooping/

Keep in mind that a 32 bit system is not a huge performer and can never be.  Don't expect good performance if trying to use more than about 2 different programs at one time.  That includes only 2 tabs in Chrome.

First, undo everything you did on the boot tab of msconfig.  Msconfig is a diagnostic tool, not a "fix it" tool.  Changing settings on the msconfig boot/advanced options tab can only harm the functioning of your system.  In fact, setting the "Maximum memory" on the msconfig boot/advanced options tab can decrease the amount of available RAM

Even if a hardware device has its own built-in memory (e.g., a video card), Windows has to reserve an "address space" equal to the amount of device memory in order to let the system access and interact with that memory.  That amount is subtracted from the available system memory and is said to be "hardware reserved" and unavailable even though the physical memory is there.

Devices have to map their memory below 4 GB for compatibility with non-PAE-aware

Windows releases. Therefore, if the system has 4GB of RAM, some of it is either disabled or is remapped above 4GB by the BIOS. If the memory is remapped, X64 Windows can use this memory. X86 client versions of Windows don’t support physical memory above the 4GB mark, so they can’t access these remapped regions. Any X64 Windows or X86 Server release can.

X86 client versions with PAE enabled do have a usable 37-bit (128 GB) physical address space. The limit that these versions impose is the highest permitted physical RAM address, not the size of the IO space. That means PAE-aware drivers can actually use physical space above 4 GB if they want. For example, drivers could map the "lost" memory regions located above 4 GB and expose this memory as a RAM disk.

--  https://msdn.microsoft.com/en-us/library/windows/desktop/aa366778%28v=vs.85%29.aspx#how_graphics_cards_and_other_devices_affect_memory_limits

There's probably not a lot you can do short of disabling some hardware device, but you can see what's using the memory this way (you'll need to do some hexadecimal arithmetic; in Calculator, built into Windows, select View > Programmer):

Open Device Manager (click Start Orb, type devmgmt.msc and press Enter)

Click View and select "Resources by connection"

Expand the Memory node

Alternatively, click Start, type msinfo32.exe.  Then select Hardware Resources > Memory

That is correct.  A 32 bit system can only "see" about 3.75G of memory.  Installing more than that is useless.  To use more memory than that you need a 64 bit operating system.  

If you are a typical computer owner, you bought your computer from Dell or the like and it came with Windows installed.  That computer carries a licence from Microsoft for the particular Windows edition that was installed.  Edition means Home, Pro, etc, and 32 or 64 bit.  That licence is perpetual, but ONLY for that specific computer.  It is not transferrable.

So, the only way you can upgrade your system (assuming the above description is correct) is to buy another licence.  There are no licences for Windows7 sold any longer, Only Windows 10.  

It is quite possible your current computer will not even run Windows 10, or if it will, will run poorly.

Your problem is not memory, it is performance.  Memory is but one way to improve performance.  Yours is limited to that 4 G, but can likely perform much better if you followed my advice.  Otherwise, you will need to buy a NEW PC.

 Is there any way to free up those hardware occupied memory. ?

Yes.  Remove or disable the hardware that uses that address space.  I already explained how to determine what that hardware is.

You ought to check -- almost 2 GB is quite high for hardware reserved RAM.

Of course, the whole issue of "not enough RAM" is a wild goose chase.  As you can see in the Resource Monitor screenshot, you have 741 MB of available RAM (that's about 18% of your installed memory).  Although it may make you nervous to see a small amount of "free" RAM, Windows is designed to use as much memory as is available -- unused RAM is wasted RAM.

If you really want to get down in the weeds and investigate memory usage, read this article:  https://techcommunity.microsoft.com/t5/ask-the-performance-team/mystery-memory-leak-where-did-my-memory-go/ba-p/1675369

In your original question, you said that you were"facing lot of lag recent days."  I suspect that a lack of RAM isn't the cause; it's more likely to be Google Chrome thrashing your hard drive.

That is correct.  A 32 bit system can only "see" about 3.75G of memory.  Installing more than that is useless.  To use more memory than that you need a 64 bit operating system.  

If you are a typical computer owner, you bought your computer from Dell or the like and it came with Windows installed.  That computer carries a licence from Microsoft for the particular Windows edition that was installed.  Edition means Home, Pro, etc, and 32 or 64 bit.  That licence is perpetual, but ONLY for that specific computer.  It is not transferrable.

So, the only way you can upgrade your system (assuming the above description is correct) is to buy another licence.  There are no licences for Windows7 sold any longer, Only Windows 10.  

It is quite possible your current computer will not even run Windows 10, or if it will, will run poorly.

Your problem is not memory, it is performance.  Memory is but one way to improve performance.  Yours is limited to that 4 G, but can likely perform much better if you followed my advice.  Otherwise, you will need to buy a NEW PC.