The auto archiving feature will remove the emails from mailbox'es and store it as a PST file. normally archive.pst gets stored in local settings\application data\Microsoft\Outlook.
Once auto archiving is carried out, you'll have to run an online defrag and then an offline defrag to clear off the whitespaces in the mailbox db's and to reduce the actual size of the db's.
Auto archive -
http://www.freeemailtutorials.com/microsoftOutlook2003/pstFilesAndArchiving/configuringAutoArchiveSettings.cwdOffline defrag -
http://www.petri.co.il/defragment_exchange_2000_2003_server_databases.htm