I used to explain computers in terms of an office workspace. Your desktop (memory) is the display of what you are currently working on, if you want to write a letter, you get your typewriter (application) out of your drawer (storage). Your desktop can only hold so many things at one time, so sometimes you need to put something away before you can access then next thing. Some application need more room than others - say a drawing application might need more space. At the end of the day when you switch off the computer, the desktop is wiped clear, but what ever is in your drawer is available to be used again. If you want to be able to use something again you need to make sure you save a copy to the drawer.
I've yet to find someone who can't be made to understand basic principles on how a computer operates conceptually by that metaphor.