By shared memory, it means memory it can borrow from the RAM. You are double counting the RAM and Shared memory - It is the same thing.
You have 4 gb Ram and 1 gb Vram. = 5 gb
Now, the 1gb Vram is dedicated, and cannot be reduced, thus, out of the remaining units of memory, your computer being 32 bit, allows 4 (maximum possible in a 32 bit architecture)-1(Vram) = 3gb - which is being used by RAM.
Now, if your graphics card was to exhaust its 1gb Vram, it will "borrow" memory from the RAM, and your RAM would be further reduced, temporarily. This is a highly unlikely event, but not impossible.
The maximum limit it can borrow is that 1274 mb shown in the screenshot.
Don't worry about it. You still have 3 GB ram which can be utilized. (Mind you, even if you're doing very high intensity work, it is very unlikely that you are consuming all of that memory).
But, if you're cynical, and want all the memory you've paid for, go ahead and install a 64 bit windows.