How do I erase and install iMac to factory settings using Install disk?

Question

Once in a while I like to do an erase and install to boost performance and get rid of extra unused files/applications on my computer that are inevitably slowing things down. I have already tried disk repair and that isn't helping.
The problem is now that Lion/Mountain Lion no longer support PowerPC applications, I can't figure out how to use the Install Disk that came with my computer. My computer came with 10.4 (Tiger). I have been unable to erase and restore my computer to it's original factory settings.
I have read a bunch of threads that say to hold down the "C" key, but nothing happens when I do this. The computer just starts up like normal.
The reason I want to do this is because my computer is going slower and slower all the time. I have the "Free Memory" app and I can see my memory decreasing slowly day by day. It goes from about 3GB to less than 1GB in a few days. If I restart, I'm back up to 3GB again.

Answer 1

You had to use Snow Leopard to install Lion or Mountain Lion, so you can downgrade to Snow Leopard:
Downgrade Lion/Mountain Lion to Snow Leopard
1.  Boot from your Snow Leopard Installer Disc. After the installer loads select your language and click on the Continue button.  When the menu bar appears select Disk Utility from the Utilities menu.
2. After DU loads select your hard drive (this is the entry with the mfgr.'s ID and size) from the left side list. Note the SMART status of the drive in DU's status area.  If it does not say "Verified" then the drive is failing or has failed and will need replacing.  SMART info will not be reported  on external drives. Otherwise, click on the Partition tab in the DU main window.
3. Under the Volume Scheme heading set the number of partitions from the drop down menu to one. Set the format type to Mac OS Extended (Journaled.) Click on the Options button, set the partition scheme to GUID then click on the OK button. Click on the Partition button and wait until the process has completed.
4. Quit DU and return to the installer. Install Snow Leopard.
This will erase the whole drive so be sure to backup your files if you don't have a backup already. If you have performed a TM backup using Lion be aware that you cannot restore from that backup in Snow Leopard (see below.) I suggest you make a separate backup using Carbon Copy Cloner 3.4.1.
If you have Snow Leopard Time Machine backups, do a full system restore per #14 in Time Machine - Frequently Asked Questions.  If you have subsequent backups from Lion, you can restore newer items selectively, via the "Star Wars" display, per #15 there, but be careful; some Snow Leopard apps may not work with the Lion files.
Booting From An OS X Installer Disc
1. Insert OS X Installer Disc into the optical drive.
2. Restart the computer.
3. Immediately after the chime press and hold down the "C" key.
4. Release the key when the spinning gear below the dark gray Apple logo appears.
5. Wait for installer to finish loading.