Versions allows easy creation and management of derived versions of your uploaded files.
With them you can do transformations, transcoding between formats, cropping, resizing, watermarking, quality adjustment, and more for both images & videos, even audio files & pdf documents.
Each time you make some file transformation (thumbnail generation, resizing, video conversion, etc.) - that transformed file will be saved as file version within your account. For more info check URL-based Transformations documentation.