I read the subversion book and it is clear to me that subversion does not store individual files but only deltas in order to minimize disk space. Subversion also does the same with binary files as well (this used to be a huge weakness of CVS).
However I do not understand the exact mechanism. When I commit a file what happens?
The first case might seem the most logical. This however raises another question. If I have in a subversion repository a file with 1000 commits and a new developer checks out a clean copy, then subversion would have to fetch the original version (initial import) and apply 1000 diffs on this before returning the result. Is this correct? Is there some sort of caching for files where the latest version is kept as well?
Basically where can I find information on the svn repository internals?
Update: Apparently the backend of subversion plays a big role in this. At the time or writing FSFS uses option 1 while BDB uses option 2. Thanks msemack!
Because Subversion's repository format is entirely internal, they are free to change the representation from one revision to the next. I believe the current revision generally stores reverse deltas (your option 2), but also stores complete snapshots periodically so it doesn't have to resolve 1000 diffs before returning a result.
The Subversion 1.6 release notes has a section on Filesystem storage improvements that has some notes on this, and links to other sources. Suffice to say that the details of Subversion data storage are complex and subject to change.
There is also a design document in the Subversion source tree that describes the use of skip deltas in Subversion. Generally, the /notes/ directory contains several useful documents regarding Subversion internals.