How does Time Machine work?

I apologize for the "newbie" type question but I'm genuinely confused and hoped someone might be able to explain this to me.

When transferring my music folder to an external drive there should have been roughly 28GB heading over but 78GB was transferred. Is it possible that by drag/dropping the music folder it copied everything Time Machine backed up for me over the last few months? Does Time Machine acknowledge the deletion of a file and erases it from memory? I'm just concerned about the space (or rather, rapidly decreasing space) on my hard drive. My previous Macbook only had 80 GB and I used a total of 78 GB after four years of use. This thing is a 320 GB machine and I have 206 GB left after only four months of use, no change in my usage habits.

Any guidance would be much appreciated.

Time Machine wouldn't store anything on your hard disk as it only backs up to an external drive.

Well that sure eliminates Time Machine as the cause!

I used DaisyDisk and saw the lost space is indeed because of the music duplication. I'm not sure how or why it did that (transferred using an external and firewire) but it's going to be a long night. It'd be easier if there were some form of a pattern but only some songs were duplicated. And somehow amounted to more than double of what should be there. Oi vey.