The amount you specify with -Xmx is only for the user accessible heap - the space in which you create runtime objects dynamically.
The Java process will usea lot more space for its own needs, including the JVM, the program and other libraries, constants pool, etc.
In addition, because of the way the garbage collection system works, there may be more memory allocated than what is currently in the heap - it just hasn't been reclaimed yet.
All that being said, setting your program to a maximal heap of 256MB is really lowballing it on a modern system. For heavy programs you can usually request at least 1GB of heap.
As you mentioned, one possible cause of slowness is that some of the memory allocated to Java gets swapped off to disk. In that case, the program would indeed start churning the disk, so don't go overboard if you have little physical memory available. On Linux, you can get page miss stats for a process, I am sure there's a similar way on windows.