ASIO (Audio Stream Input/Output), developed by Steinberg, is a cross-platform, multi-channel audio transfer protocol that is being adopted by many of the manufacturers of audio/MIDI sequencing applications. It allows software to have access to the multi-channel capabilities of a wide range of powerful sound cards.
ASIO expands on the basic capabilities of a standard computer sound card, most of which can only provide stereo (two-channel) audio input and output. The ASIO specification defines the interface that manufacturers of professional audio sound cards must use to create an ASIO driver for their hardware. This driver allows the host audio/MIDI application to "see" all of the inputs and outputs available on the sound card. The user can then assign these I/O ports as needed for recording or playback when using an ASIO-compatible software program. This allows the users to record more tracks simultaneously than the previous limitation of two channels imposed by a standard sound card.
VST
VST is an acronym for Virtual Studio Technology and refers either directly to some versions of
the Steinberg Cubase program or VST plug-ins.
VST plug-ins
VST plug-ins are software modules that can take the form of instruments or effects. Competing technologies include Apple Computer's Audio Units, and Digidesign's AudioSuite, Real-time AudioSuite, and TDM.
VST instruments
A VST instrument (or VSTi) is a type of VST plug-in that is generally used to synthesize sound or play-back sampled audio. Types of VST instrument include (among others) virtual synthesizer devices and sampler devices.
VST instruments can be played in real-time when used with an appropriate software and hardware configuration.
VST effects
A VST effect is a type of VST plug-in that is generally used to process audio. Types of VST effect include (among others) reverb processors or phaser effects.
VST effects can be used in real-time when used with an appropriate software and hardware configuration, such as a sound card that supports ASIO, software that bypasses Windows' sluggish audio engine and so offers much lower latency times, allowing for effective real time playing.
More RAM is never a bad thing. It might be the cause of your problem, but it's hard to say.
I don't use Cubase either, but in SONAR the problem is usually related to buffers settings or drivers as was already suggested. It's not actually a MIDI problem, per se, as it's audio that's actually being delayed. The fact that you're getting an error message indicates that your problem is likely in your drivers though. Someone who knows more about Cubase will have to help you if this isn't enough. You might go to Steinberg's site if you haven't already.
Ted