Make sure you modify the “Java Application Runtime Settings,” not the Applet settings shown in the picture.
Add ‘-Xmx300m’ to the “Runtime Parameters” box. Replace 300 with whatever amount of RAM you wish to allocate; but make sure you don’t go overboard (eg >1024) or else your performance will seriously suffer.
As for Chrome; that’s normal, expected behaviour. It creates a new process for every tab you have open, plus every extension, app, theme or flash container. As I type I have about 15 chrome.exe processes running with only four tabs open.