This is a limitation of Intel's supporting chipset. If the Macbook is either the Mid 2007 generation (May-November 2007/MacBook2,1/EMC 2139/2.0 or 2.16GHz Core 2 Duo/Intel GMA950) or the Late 2006 generation (November 2006-May 2007/MacBook2,1/EMC 2121/1.83 or 2.0GHz Core 2 Duo/Intel GMA950), then you may install 4GB of RAM, but the machine will only speak to 3GB of it.
The A1181 MacBook designation was around for several years, and there's a lot of variation in capabilities between the eight(!) generations.
