Before DroidBOX came into existence, some of us wondered the same thing about a couple of Android devices we owned. Once a customer asked, we decided it was time to check exactly what caused this.
The explanation below refers to the original X7 model and one specific firmware, however the theory (but not necessarily specific numbers or partition names) still holds true for all Android devices.
Open the list of all installed Android applications, and click on Settings. If you don't see an interface similar to that found in these screenshots, then click on the last tab and press the More or Advanced Settings button. Scroll down the screen if needed and click onto the Storage sub-menu.
If you now scroll down the screen which displays the storage details, you should several sections, covering the internal storage, NAND flash, external (micro)SD card and any USB device attaxched. In this example, the NAND Flash is just under 4Gb. This, combined with internal storage and the space taken up by the operating system itself, takes you to a total of 8Gb.
The NAND area - (the /mnt/sdcard directory in this example) uses the NAND section of the onboard storage. This means you have just under 4Gb of extra space where you can store apps, videos, music, books, pictures etc. Please note that if you ever flash a new firmware, you will need to backup those files that you copied there, onto an external device (or real life external microSD card) as that area is normally wiped by firmware upgrades.
To move apps from the internal storage area to the "internal" SDCard areas (again, just to clarify, SDCard is still internal memory, the physical card you plug in is mapped to /mnt/extsd in this example) you go to Settings, Apps, and then click on the app you want to move. There should be a "Move to SD card" button there (or "Move to device" button if the app is already in the SDCard directory). Click it and wait a short while, and the app will have been moved.
However, some apps can not be moved, and it generally considered wise to leave apps that are required immediately upon booting the machine in Internal Storage/"device" memory. This advice may only be relevant on devices (Gingerbread or earlier version of Android use this approach more often) that use a physical microSD card for the SDCard directory, as it can take some seconds after booting has completed before the external SD card is mounted, and therefore the data accessible, this has not been properly tested by us.
On our devices, you will normally find that the XBMC app takes up the largest amount of space. This is because when you import your videos/songs/other media into its library, it downloads cover art, actors'/film crews'/artists' information and descriptions for each file. So, if you import 1 film and 10 songs you will download and store (for example) 2Mb of metadata. If you import 200 films and 400 songs, you download and store (another made up example) 300Mb of metadata.
With your external (micro)SD card, you can place any content you like on it, apart from apps, and be aware that firmware upgrades will not touch this area.
The naming convention for paths, used by Android, can be a little confusing, and different devices approach the issues of splitting and directory pointing differently. Because a total of 6Gb is considered large enough for installing apps on, the external microSD card is not used on the X7 for apps. The /mnt/sdcard vs /mnt/extsd confusing situation arose because very early devices often did not have a slot for an external memory card, and to ensure backwards compatibility, the naming convention was adhered to.
I hope this answers your question, and reassures you that we have not hidden away any memory from you, or used inaccurate descriptions in our listings/box information.
2015 Edit
Other devices and firmwares do indeed use different naming conventions. Please see
http://www.droidboxforums.com/posts/8792/ for details. A rough copy and paste is included below in case the forum URL changes.
Dave
