Disclaimer: I'm only an iPhone developer, not an Android developer.
You are correct, the difference between emulators and simulators is that emulators mimic the software and hardware environments found on actual devices. Simulators, on the other hand, only mimic the software environment; they otherwise have access to all of the host system's hardware resources such as disk space, memory and processor speed.
Apple always harps on the importance of device testing because iPhone Simulator does not emulate an iPhone processor, disk drive, memory constraints and whatnot. You hardly ever get memory warnings unless your Mac is struggling to manage resources itself, unless you simulate (again) memory warnings from the Simulator's menu item.
In fact, if you go to Settings > General > About, you'll see that the Simulator's disk capacity is the same as the filesystem of the Mac it's installed on:
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