Linux – What do top’s %MEM and VSZ mean

I'm working on an embedded Linux system (128MB RAM) without any swap partition. Below is its top output:

Mem: 37824K used, 88564K free, 0K shrd, 0K buff, 23468K cached
CPU:   0% usr   0% sys   0% nic  60% idle   0% io  38% irq   0% sirq
Load average: 0.00 0.09 0.26 1/50 1081
  PID  PPID USER     STAT   VSZ %MEM CPU %CPU COMMAND
 1010     1 root     S     2464   2%   0   8% -/sbin/getty -L ttyS0 115200 vt10
 1081  1079 root     R     2572   2%   0   1% top
    5     2 root     RW<      0   0%   0   1% [events/0]
 1074   994 root     S     7176   6%   0   0% sshd: root@ttyp0
 1019     1 root     S    13760  11%   0   0% /SecuriWAN/mi
  886     1 root     S     138m 112%   0   0% /usr/bin/rstpd 51234  <== 112% MEM?!?
 1011   994 root     S     7176   6%   0   0% sshd: root@ttyp2
  994     1 root     S     4616   4%   0   0% /usr/sbin/sshd
 1067  1030 root     S     4572   4%   0   0% ssh passive
  932     1 root     S     4056   3%   0   0% /sbin/ntpd -g -c /etc/ntp.conf
 1021     1 root     S     4032   3%   0   0% /SecuriWAN/HwClockSetter
  944     1 root     S     2680   2%   0   0% dbus-daemon --config-file=/etc/db
 1030  1011 root     S     2572   2%   0   0% -sh
 1079  1074 root     S     2572   2%   0   0% -sh
    1     0 root     S     2460   2%   0   0% init
  850     1 root     S     2460   2%   0   0% syslogd -m 0 -s 2000 -b 2 -O /var
  860     1 root     S     2460   2%   0   0% klogd -c 6
  963     1 root     S     2184   2%   0   0% /usr/bin/vsftpd /etc/vsftpd.conf
    3     2 root     SW<      0   0%   0   0% [ksoftirqd/0]
  823     2 root     SWN      0   0%   0   0% [jffs2_gcd_mtd6]

ps (which doesn't understand any options besides -w on busybox) shows:

  PID USER       VSZ STAT COMMAND
    1 root      2460 S    init
    2 root         0 SW<  [kthreadd]
    3 root         0 SW<  [ksoftirqd/0]
    4 root         0 SW<  [watchdog/0]
    5 root         0 SW<  [events/0]
    6 root         0 SW<  [khelper]
   37 root         0 SW<  [kblockd/0]
   90 root         0 SW   [pdflush]
   91 root         0 SW   [pdflush]
   92 root         0 SW<  [kswapd0]
  137 root         0 SW<  [aio/0]
  146 root         0 SW<  [nfsiod]
  761 root         0 SW<  [mtdblockd]
  819 root         0 SW<  [rpciod/0]
  823 root         0 SWN  [jffs2_gcd_mtd6]
  850 root      2460 S    syslogd -m 0 -s 2000 -b 2 -O /var/log/syslog
  860 root      2460 S    klogd -c 6
  886 root      138m S    /usr/bin/rstpd 51234
  945 root      2680 S    dbus-daemon --config-file=/etc/dbus-system.conf --for
  964 root      2184 S    /usr/bin/vsftpd /etc/vsftpd.conf
  984 root      4616 S    /usr/sbin/sshd
  987 root       952 S    /sbin/udhcpd /ftp/dhcpd.conf
 1002 root      4056 S    /sbin/ntpd -g -c /ftp/ntp.conf
 1022 root      2464 S    -/sbin/getty -L ttyS0 115200 vt102
 1023 root      7176 S    sshd: root@ttyp0
 1028 root      2572 S    -sh
 1030 root      2572 R    ps

When you look at process 886, you see that it uses 112% of the availble memory and has VSZ (virtual memory size) of 138MB. That doesn't make any sense to me.

In the top man page it says:

%MEM — Memory usage (RES)
A task's currently used share of available physical memory.

How can this process consume more than 100% memory?
And if it's such a memory hog, why are there still 88564K RAM free on the system?