Typically, as updates and entirely new editions of a program or driver are released, the version number will increase. This means that you can usually compare the version number of the software installed on your computer with the version number being released to see if you already have the latest version installed.
Version numbers are usually divided into sets of numbers, separated by decimal points. Usually, a change in the leftmost number indicates a major change in the software or driver. Changes in the rightmost number typically indicate very minor changes. Changes in other numbers represent varying degrees of changes.
For example, you may have a program installed that reports itself as version 3.2.34. The next release of the program may be version 3.2.87 which would suggest that several iterations were tested internally and now a slightly improved version of the program is available.
A future release of 3.4.2 would suggest that more substantial updates are included. Version 4.0.2 might be a major new release.
There is no official way of versioning software but most developers follow these general rules.
Note: Sometimes the word version is used generally to refer to either a version name or a version number, depending on the context. Some examples of version names include "7" as in Windows 7 and "Vista" as in Windows Vista.
The version number of the initial release of Windows 7 was 6.1.7600.16385 and for Windows Vista it was 6.0.6000.16386.