I have been installing the WSS 3.0 based on in-place upgradation last night and did some detailed R&D on the way the WSS manages the content databases.
Managing Content Databases
Basically Microsoft Windows SharePoint Services uses a database to store and manage site content. Just as each virtual server can host multiple top-level Web sites, each virtual server can rely on multiple content databases to store site content. If you are running Windows SharePoint Services on a single server, hosting just a few sites, you can probably use the same content database for all of your sites. If you want to add capacity in a server farm, you will most likely need several content databases to store site data for each virtual server.
To make it easier to manage site content for large server farms, you can also set a limit on how many top-level Web sites can store content in a content database. You can specify a warning limit and a maximum limit for the number of sites. When a warning limit or maximum limit is reached, an event is logged in the server’s NT Event Log, so you can take action. When a maximum limit is reached, no more sites can be created using that content database.
When you create a new site, the databases are queried and the new site’s content is added to the database which has the most available space. For example, suppose your virtual server has three content databases, all set to warn you when they reach 2000 sites, with a maximum of 2025 sites. When the first content database reaches 2000 sites, an event is logged. When it reached 2025 sites, no more sites can be created in that database. When you are close to the limit on two out of three of the content databases, and you know that you’ll need to host more than 2000 additional sites, it is time to create another content database.
You can specify any number of sites for the warning and maximum number of sites. To determine an appropriate number for your situation, divide the amount of available disk space on the database server by the estimated size for each site (plus a buffer). If you are using quotas, divide the disk space by the disk space quota (plus a buffer).
A buffer allows the number of sites to grow beyond the warning level, but not exceed your disk space. The size of the buffer is up to you, but make sure to provide enough space for growth, so that you don’t exceed the maximum number before you can react to a warning event. When the maximum number is reached, no more sites can be created in that content database. Be sure to create a buffer large enough so that your users can continue to create sites as required, without having to constantly create new content databases.
Content databases are created and managed at the virtual server level. When you create a new content database (or when you extend a virtual server), you specify the database connection settings for the content database. You can update these settings if, for example, the database server name changes.
You can create or delete content databases, and specify settings such as the database server to use for the content and how many top-level Web sites to allow per content database in a server farm setting, by using pages in HTML Administration. In HTML Administration, you can view the full list of content databases for your virtual server, and see the current, warning and maximum level of sites for the content database at a glance.