History
The Intel 8086, the predecessor to the 286, was originally designed with a 20-bit address bus for its memory. This allowed the processor to access 220 bytes of memory, equivalent to 1 megabyte. At the time, 1 megabyte was considered a relatively large amount of memory, so the designers of the IBM Personal Computer reserved the first 640 kilobytes for use by applications and the operating system and the remaining 384 kilobytes for the BIOS (Basic Input/Output System) and memory for add-on devices.
As the cost of memory decreased and memory use increased, the 1 MB limitation became a significant problem. Intel intended to solve this limitation along with others with the release of the 286.
Read more about this topic: Protected Mode
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