It will always keep the latest version of a file and as many versions of a file until it needs space, at which point it will start deleting the oldest version first.
This daily, weekly monthly thing has nothing to do with physical files ... they are just pointers in the TM database to keep track of which version to keep.
How that technically works internally, no clue .... I just have a lot of confidence in TM and don't worry about that.
On top of TM, I make a monthly bootable clone of my internal hard disk ( Using SuperDuper! ) onto another external drive. Only reason is that if ever something happens to my internal disk, SuperDuper! allows me to be back in business in minutes, whilst I wait for a new hard disk.

Cheers ... McBie