There were about 15 different versions/eras of iMac, and they have different RAM capacities (and run at different processor speeds, etc). All of them allow you to add RAM, and as long as it’s good-quality RAM (Kingston is nice), OS X will get along with it.
- iMacs that looked like this:
Original Bondi Blue iMac = 233 MHz = 384 MB (Rev A) or 512 MB (Rev B). Takes two PC66 144-pin SO-DIMMs of 10ns speed or better.
Five Flavor iMac (Blueberry, Grape, Strawberry, Tangerine, Lime) = 266, 333 MHz versions; 512 MB, same DIMMS as the Original above.
Slot-Loading, first iMac with FireWire (same colors as above plus Graphite) = 350, 400 MHz versions; 1 GB max RAM, takes 2 PC100 3.3v 168-pin SDRAM chips of 10 ns or better.
Indigo, Ruby, Sage, Snow, Graphite iMacs of Summer 2000 = 350, 400, 450, or 500 MHz; same RAM as first Slot-loading model listed immediately above
“Perigree” and “Kiva” iMacs. Indigo, Graphite, Snow, Blue Dalmation and Flower Power. Last of the original series iMacs. Same RAM as above.
- iMacs that look like this:
First-generation G4 iMac = 700 or 800 MHz G4; takes two RAM chips of different types, one hard to get to [PC 133 168-pin SDRAM chip], the other easily accessible [PC 133 144-pin SO-DIMM chip] —maxes out at 1 GB, I think the hard-to-get-to chip will always have 512 in it unless someone took it out.
17" Flat-panel iMac = 800 MHz; same RAM as above
17/15" Later Flat-panel iMacs with Airport Extreme and Bluetooth = 1 GHz; 1.5 GB RAM max, in the form of 1 PC 2100 200-pin SO-DIMM [easy to get to] and 1 PC 2100 184-pin SDRAM [have fun]
1.25 GHz edition Flat-panel iMac = 1.5 GB max RAM in the form of 1 PC 2700 200-pin SO-DIMM [easy to get to] and 1 PC 2700 184-pin SDRAM chip [the deeply buried one]. Includes the bit 20-inch screen version as well as 15’ and 17" versions.
By this point I’ve gone past the iMac that you have; somewhere in there I went past the last iMac that will natively boot MacOS 9 (the newer ones will only boot MacOS X). So yours is in there somewhere.