Yes that's right, the versions to retain was configurable, and the whole versioning mechanism was really useful and a great miss from today's OSes. The VMS file and directory syntax otoh was a real pain, Unix definitely wins there.
The version number was used the same way in TOPS-20 (which I never used) and Tenex, its predecessor (which I did). Emacs still has a facility for numbering backup files in the same way.