If Azure Blob Versioning is enabled and a file with the same name is uploaded to the same folder and container, Azure will create a new version of that file with a unique Version ID. This behavior is managed entirely by Azure and applies regardless of how the file is uploaded (via Salesforce, directly, or through any integration).
From the application perspective, when versioning is enabled, the app handles this by creating a new Cloud Document record for the new version. The Version ID is stored, and the corresponding checkbox (indicating versioning) is also marked for that record.
More Details: What is Azure Blob Versioning and how does it work with Salesforce?