The maximum memory space that can be addressed by 18 address bits is 262,144 bytes, calculated using the formula 2^n, where n equals 18. This equates to 256 kilobytes, as 1 kilobyte is defined as 1,024 bytes. While theoretically, 2^18 addresses are possible, not all chips utilize every address, as seen in certain microcontroller variants. The confusion arises from the use of "k" to denote 1,024 rather than 1,000 in this context. Understanding these distinctions is crucial for accurate memory addressing.