Let's say you buy a brand new hard drive that holds 500GB of information. You've never copied any files onto it. When you look at it in Explorer it says "0GB used".
It's still a 500GB hard drive, right?
So you put 200GB of files onto it. Now it says "200GB used".
The hard drive hasn't changed - it still can hold 500GB.
Now you delete 100GB, and even go so far as to remove them from the recycle bin. When you look at Windows Explorer, it says "100GB" used. But it's still actually a 500GB drive, right?
The space that held the 100GB of files that you deleted - it's still there on the disk. It hasn't vanished. And when you deleted the files that space didn't get overwritten (notice that you can delete a 10GB file instantly).
So what you've really got is 100GB of files (that you didn't delete), 100GB of files (that you did delete), and 300GB of space that you've never, ever used yet.
But the space that was used the deleted files is up for grabs - when you put more files onto the drive they MAY go into the space that was never used or they MAY go into the space that your old files used. If they go into the old file's space, then the data for those old files will be done - there won't be any way of getting it back.
So if you put 100GB of files on the drive, then delete it all, then put it on again and delete it and keep doing that over and over again, you're going to be reusing much of the same space on the drive. It doesn't magically grow, it just uses the same space over and over again. It's only if you're lucky and the space for old deleted files hasn't been reused yet that you can get the old files back.
When you create a new file, it's location is stored in the catalog.
When you move the file, the catalog is updated with the new location, but the data on the hard drive is not moved. That is why you can move a large file instantly.
When you delete a file, the catalog changes the pointer to the recycle bin, just as though it was moving it.
When you have added enough files to fill up the drive, you will run out of space to add any more. If you delete a file to make room, you still will not have room because the recycle bin simply became larger. Only when you remove files by emptying the recycle bin will you actually reclaim space so you can create new files.
Forensic programs can read all of the data sectors on a hard drive, and possibly reconstruct files that were both deleted and emptied from the recycle bin. Very smart forensic programs can even reconstruct files which have been written over. It takes multiple passes of overwriting with random data to securely erase the contents of a hard drive.