How does Template versioning work?

[stu-mck]

I'm interested to understand how the system handles changes to a workflow definition.
I'm assuming that if a workflow instance starts with a particular definition, that relationship would be immutable. If we subsequently need to change that template (add a new step, change the data model etc. - anything considered to be a breaking change) then we would need to create a new version of the workflow template (using the version attribute in the template) and load both version 1 and version 2 of the template (version 1 in order to support any instances running against that template).
Am I right in assuming that with both version1 and version 2 definitions loaded in the host, if I start a new workflow instance, it will use the template with the highest version number?