You can set it to use as much memory as you want, but you will want to give it at the very least 256MBs of RAM. And yes, it could definitely affect the performance of your main server if you run them both on the same PC, but running 2 servers on the same box will always have the chance to affect each other no matter what. It all depends on how heavy the load is on your server from players and how good the stats are on your server.
If you plan to have a high traffic server, then I would strongly recommend that your test server be created on a completely separate PC.
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