Jay,
The latest Version of a document is the one that you will capture if you use: File > Duplicate, File > Save. If you then send the original file to the trash, the only trace of the versions of that document will be in the trash and in your backups.
If you run the OnyX maintenance scripts, you can choose to delete the Versions history without the little dance I described above, but I can't think of a good reason to do that, since you will be killing the versions data for every document on your system. Too big a risk in my mind, because you never know when you might want to go back. At the very least, do a comprehensive backup before doing something like that.
Jerry