They allocate it and use it. Since MAME was written for the PC, 16mb is nothing, and probably speeds up the emulation. No doub't if it was written again for a device with a much smaller amount of memory, it would be rewritten.
I do the same - for example, in one part of my PCE emu's rendering routines, it can use up 4 bytes to do a certain part of it, or use 524,288 bytes and do the same thing, but significantly faster. Considering I've got 8mb to play with, I use the later, but it obviously wouldn't work on a GBA.