The flash memory of atmega8 is 8Kb.
Is this the maximum size for the .hex file, or it the max memory which i can allocate to variables in my code?
If none of the above is true, than what is memory allocation structure of Atmega8? To which memory does .hex file goes to?
In standard use your code goes into the 8 Kbytes of Flash memory and variables go into the 1 Kbyte of SRAM. Note that because a hex file represents a single byte as a pair of hexadecimal characters and contains some other information it will be over twice the size of the actual code that will be loaded, so a hex file a bit over 16K should load.
The most reliable place to find out of much Flash and SRAM your code uses is from the compiler. If you're using Atmel Studio 6 in the build output area if you scroll up you should see something like:
Program Memory Usage : 540 bytes 0.8 % Full
Data Memory Usage : 0 bytes 0.0 % Full
So the program memory use shows how much of the Flash will be used and data memory usage shows how much of the SRAM will be used.
The flash memory is your program memory. That would be where your hex file is stored. You can force data into flash if you're tight on RAM, but it isn't as fast of a read/write as RAM.
RAM is the memory used at run time, for variables and whatever other else needs to be accessed on the fly.
EEPROM is nonvolatile memory for storing things such as calibration data, serial numbers, etc. It is rarely used for anything that needs to be written regularly.
For actual memory usage see map file. In case of GCC tool-chain that do by linker as:
avr-ld -Map=app.map
or through gcc driver:
avr-gcc -Wl,-Map,app.map
