From Secrets of SharePoint – Tip of the Day
SharePoint offers versioning of documents and items and for document libraries we are able to have both minor and major versions. Each version of a document, both minor and major version is stored in the content database as a full version. This means that a 10MB PowerPoint presentation that has 10 versions is using 100 MB in your content database. Combine that with a number of draft versions and a lot of documents we can save much storage by limit the amount of versions.
Versioning is changed from the list settings page and Versioning.