When you initially upload a file, you create a first version. When you or someone with Editor access uploads the file again, a new version is created. All previous versions are maintained. Versions can be deleted.
To access versions of a file, open the file page and click the Versions tab. You can see information including the version number, when it was updated, the person who made the updates, and the version size.
The administrator can disable versioning. If versioning is disabled, the new uploaded version overwrites the existing version.