Here's what happens:
You have a database with 10 rows. You update one row, that's a transaction and you now have one row in the transaction log. You insert 10 more rows, again that's a transaction and you now have 11 rows in the log. You update five of those rows, yep, another transaction and you now have 16 rows in the log. You delete five rows, and now there are 21 rows in the log, but only 15 rows in the database. As you see, the log is getting bigger that the database. If you never do a full backup of the database, or never truncate the transaction log, it is possible for the log to get several times larger than the database.
Please take a look at:
FAQ183-1534
FAQ183-345
and the Books Online for more information.
-SQLBill