1. In Microsoft Exchange server, navigate to Management Exchange Console (Start-> All Programs, Microsoft Exchange Server 2007, Exchange Management Console)
2. Once Exchange Management Console is opened
3. Expand Server Configuration, click on Mailbox. You will see Database Management section.
4. Right Click the Storage Group you would like to compress and click on Properties
5. Place a check on Enable Circular Logging, click apply
6. Now right click the Mailbox Database file and click Dismount Database. Wait until it completely dismounts and then mount database again in order for circular logging to take effect. There is no down time so you are able to apply anytime.
7. Check your storage space, refresh if needed and you should see additional storage on your drive.