Putting a database into simple mode means that you don’t want to take log backups and all you want to do is rely on full backups for your recovery. How it accomplishes this is simple. It forces the log to truncate when the database writes data to the disk (we call that a checkpoint). So if the log isn’t storing any long-term data, then it can’t be backed up. It’s also worth noting that SQL Server 2008 won’t shrink the log file itself; it only deletes the inactive portion of the log. This means that if you have a huge transaction that grows your log to 50GB, and you’re in simple mode, the log will be 100% full at this point. However, when the operation completes, that portion of the log is marked as inactive and is deleted, but the file itself remains 50GB. Only now the file is mostly empty. For more on managing database files see: How to manage SQL Server database files.