Why is the memory usage on my iPhone being reported incorrectly by iTunes?
Given the clarifications in the comments, it sounds like iTunes is mis-reporting the free space on the phone.

Unfortunately, this may be an as-yet-unresolved bug in iTunes: there seem to be a heap of threads on discussions.apple.com describing this problem, with even recent posts lacking resolution. Here are two of them:

https://discussions.apple.com/message/16756343#16756343

https://discussions.apple.com/message/12869025#12869025

It may be worth watching those threads to see if there's a resolution - hopefully, if the bug's well-known by now, an upcoming iTunes version will fix it.