"Yes, it does erase the oldest data when the back up drive has no more room for new data. But data you value (i.e. files you have not deleted or modified) are still present. That is, the back ups are incremental so only data that has changed since prior backups is affected."
From one backup to the next, how does TimeCapsule deal with a change that is a deletion? (As in a number of photo files that are removed since the last backup.)