Zambo has it right on and I will ad just a little more info to think about.The interior of a shock is a closed system, but as the shaft goes in and out of the body (grrrrrrr! ), the available volume in the system changes because the shaft takes up some space.
Since the oil is incompressible, you have to have some gas in there to account for this change in volume. Separating the gas from the oil with a sliding piston keeps the oil from frothing up. But it also makes the shock body very long unless you 'remote' the part that has the piston in it. That's the whole purpose of the reservoir. The amount of oil that flows into the reservoir as the shock compresses is the exact volume of the shock shaft that has entered the damper body. It doesn't matter if you have 100 or 1000 psi of nitrogen preload.
Like Joel said, the extra fluid and cooling ability are an ancillary benefit.
Or Internal floating piston or dividing piston...technical term for the sliding piston is IFP (Intermediate floating piston).
Oil goes through piston regardless where the resi is at.Top or bottom of the shock. The oil that is displaced either has to go threw the piston valving or not if the remote is attached to the cap end of the shock. So it can effect the valving in a minor way.
No...my head was up my ass...good catch as it is backwards but I cant edit it.Am I miss-reading this statement, seems backwards?