VERExists - Specifies the maximum number of backup versions to retain for
files that are currently on the client file system

VERDeleted - Specifies the maximum number of backup versions to retain for
files that have been deleted from the client file system after being backed
up using TSM

RETExtra - Specifies the number of days to retain a backup version after
that version becomes inactive. A version of a file becomes inactive when the
client stores a more recent backup version, or when the client deletes the
file from the workstation and then runs a full incremental backup. The
server deletes inactive versions based on retention time even if the number
of inactive versions does not exceed the number allowed by the VEREXISTS or
VERDELETED parameters

RETOnly - Specifies the number of days to retain the last backup version of
a file that has been deleted from the client file system

Backup Retention in the Policy Domain is only used when:
        - A file is rebound to a new management class, but neither the new
management class nor the        default management class contains a backup
copy group.
        - The management class to which a file is bound no longer exists,
and the default         management      class does not contain a backup copy
group.
        - The backup copy group is deleted from the management class to
which a file is bound and       the default management class does not
contain a backup copy group.

So you are only saying to keep at the most 2 active versions with your
versions exist in your Backup Copy Group.