Jhun,
Your understanding is not correct. The setting relates to platform capacity - not if the platform is experiencing a low memory scenario.
Signature load thresholding was added in engine release E4; I'm including a link to the 7.0.2E4 release notes so you can see the whole thing:
http://www.cisco.com/en/US/docs/security/ips/7.0/release/notes/21671_01.html#wp1265369
In short - if you have a low memory classified system, a signature status of "low-memory-retired" will cause that particular signature to NOT load by default. You can set the status to retired=false to override the default setting.
The low & med memory retired settings allow us to enable additional protections on larger platforms that have additional capacity in a "automatic" fashion.