AGP size is quite simple to explain, when your game needs more then the total amount of ram available on the video card for textures etc it can borrow it from the main system ram,setting the AGP size in BIOS determines how much ram it can borrow from the main PC system ram.
Yes 64mb or 128mb is a common size,with your 256mb available on your ATi card even 64mb AGP setting in BIOS is more then enough.