via The Register:
A common misconception is that setting the recovery model to simple will cause SQL Server not to use the transaction log file (LDF), preventing it from growing to an abnormal size.
In fact, the simple recovery model will still use the transaction log when performing transactions, however it will reclaims log space to keep space requirements small.
The actual file size will not be reduced by reclaiming space. Same as performing a transactional backup will not reduce the actual file size.
This is important becase if you have a long running transaction that is performing many insert/update/delete statements, the transaction log file could grow (depending on settings) to a very large size. Once it has grown, it will stay that size until you shrink the log file.