Yes, it does erase the oldest data when the back up drive has no more room for new data. But data you value (i.e. files you have not deleted or modified) are still present. That is, the back ups are incremental so only data that has changed since prior backups is affected.
With regard to photography most of the 1TB on my working HD are image files and LR Catalogs. I started storing digital images (as scans) in 2006. In 2008 I began storing 12 MB raw files. In my case after about two years of photography storage (1TB HD Mac Mini) a 2 TB HD lets me keep about 12 months of new data backed up. Deleted or modified data older than that isn't very useful. Another strategy is to spend $60 for a new HD When Time Machine warns you it's about to old delete data.
However I store all my original raw files on a separate external HD. I think of this as a virtual file cabinet of negative sleeves. I manually back up the raw-file HD to a third HD. So during image selection I delete raw files from my working storage space. The keepers are on three devices and all the originals are on two.
“To see what is in front of one’s nose needs a constant struggle.” George Orwell