You can only watch iPlayer downloads via the BBC's own dedicated player (and not, for instance, with Windows Media Player). That program examines code in the downloaded file which tell it whether the file is still 'in date'. If it isn't, then it can't be played.
As far as I'm aware, the program also marks the file as 'deleted' in a the same way that deleting a file via Windows Explorer does. (i.e. it's still there on your hard drive but the space is made available to Windows to over-write at any time).