Unfortunately like a process there is no way for windows to request memory back from linux (besides killing the entire thing). So its up to the linux kernel to decide what to release back.
What that configuration does is limit the maximum amount of memory it can request (what the linux kernel sees as the total system memory). The reason you need to set a limit right now is that the linux kernel will pretty quickly request most of your windows memory to use as page cache if you don't limit it.
Microsoft is working to allow the linux kernel to use the windows page cache instead of maintaining a separate one.
https://github.com/microsoft/WSL/issues/4166#issuecomment-64...