Final answer:
The correct answer is 'working memory', a system for processing and manipulating information retrieved from sensory memory or long-term memory, and not merely holding it as short-term memory does.
Step-by-step explanation:
The activated but limited-capacity memory described in the question is referred to as working memory. Working memory includes the manipulation and active processing of information from sensory memory and information retrieved from long-term memory. It's like a workspace for the mind where various pieces of information are kept available for processing and use. While working memory is often used interchangeably with short-term memory (STM), they are not identical; working memory is a broader concept that encompasses the functions of STM and involves the active processing of information.