In Linux each process has its virtual address space (e.g. 4 GB in case of 32 bit system, wherein 3GB is reserved for process and 1 GB for kernel). This virtual addressing mechanism helps isolating the address space of each process. This is understandable in case of process since there are many processes. But since we have 1 kernel only so why do we need virtual addressing for kernel?
The reason the kernel is "virtual" is not to deal with paging as such, it is becuase the processor can only run in one mode at a time. So once you turn on paged memory mapping (Bit 31 in CR0 on x86), the processor is expecting ALL memory accesses to go through the page-mapping mechanism. So, since we do want to access the kernel even after we have enabled paging (virtual memory), it needs to exist somewhere in the virtual space.
The "reserving" of memory is more about "easy way to determine if an address is kernel or user-space" than anything else. It would be perfectly possible to put a little bit of kernel at address 12345-34121, another bit of kernel at 101900-102400 and some other bit of kernel at 40000000-40001000. But it would make life difficult for every aspect of the kernel and userspace - there would be gaps/holes to deal with [there already are such holes/gapes, but having more wouldn't exactly help things]. By setting a fixed limit for "userspace is from here to here, kernel is from end of userspace to X", it makes life much easier in that respect. We can just say
kernel = 0; if (address > max_userspace) kernel=1; in some code.
Of course, the kerneln only takes up as much PHYSICAL memory as it will actually use - so the common thinking that "it's a waste to take up a whole gigabyte for the kernel" is wrong - the kernel itself is a few (a dozen or so for a very "big" kernel) megabytes. The modules loaded can easily add up to several more megabytes, and graphics drivers from ATI and nVidia easily another few megabytes just for the kernel moduel for that itself. The kernel also uses some bits of memory to store "kernel data", such as tasks, queues, semaphores, files and other "stuff" the kernel has to deal with. A few megabytes is used for this as well.