It really should not be difficult to fully understand the Volume Shadow Copy/Restore point/Previous Versions/backup capabilities of Windows Vista. Sadly it takes allot of research and hands on use to piece together how they all interact. This post sheds some light on the Previous Versions piece.
First things first, Previous Versions is not a record of all changes made to a file. Your File System must be NTFS in order to use Volume Shadow Copy. Restore points and Shadow Copies are stored in the System Volume Information Folder. In some instances Previous Versions might be able to help you if a file was accidentally overwritten or deleted or damaged.
Microsoft documentation states that in Vista, Only Windows Vista Business, Windows Vista Enterprise, and Windows Vista Ultimate editions support previous versions of files. However it seems only the GUI is not in the other versions and you can use the following tool to access it http://www.shadowexplorer.com/
In Vista SP1 the following command line commands can be used. Be sure to run cmd as administrator.
VSSADMIN followed by one of the following arguments.
List Providers – List registered volume shadow copy providers
List Shadows – List existing volume shadow copies
List ShadowStorage – List volume shadow copy storage associations
List Volumes – List volumes eligible for shadow copies
List Writers – List subscribed volume shadow copy writers
Re-size ShadowStorage – Re-size a volume shadow copy storage association
The following Microsoft FAQ on Previous Versions will show you how to enable and use previous versions. http://windowshelp.microsoft.com/Windows/en-us/help/afb7ed89-ed63-4e07-a482-d7004a8f40121033.mspx#EXD