Phone's storage space decrease over time?

I think this question can be applied to any smartphone, but if I am to be specific, my phone is a Lumia 710 running Windows Phone 7.5.

With all the stuff I have, the phone only have 1GB free. But recently, somehow the storage space (not memory) decreased and now I only have about 200MB left, which will decrease the phone's performance. Sometimes the phone gained back the lost space, but in the meanwhile it will cause problems (can't download new contents, sometimes laggy interface, etc.)

So I was wondering what caused this? I heard it was because of apps using cache data, but is that true? And importantly, how to recover the lost storage space?

Also, does watching online videos (especially movie-length one) cause this as well?

Thanks!