Time Machine - How does it work?

This has probably been asked, but I think it probably has a very quick answer:

How exactly does Time Machine work in regards to which backups it keeps?

As I understand it, Time Machine makes a backup every hour for the last 24 hours. Backups prior to that are removed, keeping only one per day for the last month, and backups prior to that are kept on a weekly basis. Is this right? Does it remove backups it deems it doesn't need? How does it decide which backups to remove? By time?

For example, let's say I created a file on my Desktop today (Tuesday, April 8), and had Time Machine back it up. Then I delete it tomorrow. I will see that file on the Tuesday, April 8 whenever I search the daily backups for a month. But after that month is up, does Time Machine remove all the backups during that week, except the last (say, Sunday), thus losing that file that was only seen on Tuesday? Or does it consolidate all the files from that week into one backup for that week?

Along this vein, can a Time Machine backup ever get smaller?

 

Thanks for the response...

So... for the weekly backups prior to a month, it will keep ALL the files that it managed to backup, even if you only kept it for a day during that week? That is to say, if I backed up a movie to Time Machine, but deleted it the next day, regardless of which day in the week it was, that movie will be in that weekly backup?