With some help from Terence Devlinon a previous post, I was able to figure this out. Some of you may have figured it out already, but I still see some unanswered questions. I'm using iPhoto 11. I'm not sure how earlier versions of iPhoto will behave.
Problem: I had a 58GB iPhoto library that contained only 26GB of photos. Where did the extra 32 GB come from? I needed to recover the space (on my little 128GB 13" retina MBP)
Answer: iPhoto stores both the original photos and modified photos. You can view both of these photos by either
1) going to the File menu, Reveal in Finder, and and selecting "Modified file" or "Original File" (if you haven't modified the file, then the "Modified file" is grayed out)
2) Right clicking on iPhoto Library and choosing "Show Package Contents" and then navigating to it (but the only way you'd know how to navigate to it would be by "Reveal in Finder", since the path is circuitous)
So I have a bunch of modified photos (crops, effects, etc.) and iPhoto stores all the originals, but I don't need any of them: all I need is my modified files.
So all you need to do, to get rid of the "excess baggage" (I'm calling it this, but you may have need for it) is to export all your photos (with titles and keywords), and then import them into a brand new empty iPhoto Library (hold down the option key and click on iPhoto and create new library). I'm calling the new library "iPhoto No Baggage".
This worked for me and saved me 30GB of space. All the keywords imported.
Downside: All your events are lost (but I don't really organize by events - I go by keywords). Also your albums go pffft! No biggie for me, as long as I have keywords. But I'll have to reconstruct my smart albums based on keywords
Moving forward: So from now on, I'll be editing my new photos in a library called "iPhoto Edit Photos Here", and only after I've made the edits will I import into my main library, which I use to sync to my mobile devices.
Did I miss anything?