When your iThingie gets short of memory it signals the foreground app to reduce memory usage. If it is still short of memory it then kills background apps (starting at the biggest) until there is enough free memory. If there is still not enough memory then the foreground app is also killed.
Going on experience, it's a bit more complicated (buggy?) than that.
You can have the app running for hours, you put it in the background, do something else, bring it back to the foreground and it crashes in seconds.
I see many resource-hungry apps do this. Although nobody can say for certain, my gut feeling is that you bring the memory hungry one to the foreground and before it's had a chance to clear the stuff from the background, iOS panics about overall system RAM usage and exits even the foreground app.
This is why we have gone out of our way in OzRunways to make sure that if you start it back up, it picks up where you left off.