In Oracle versions up to 9i undo management is performed by Rollback Segments. From 9i Undo tablespaces can be used, Oracle recommeds using Undo tablespaces as they are easier to manage.
You cannot use both methods in the same database instance.
Rollback segments are used to provide a read consistent view of data to all users. If a
user executes a query that uses data that has been changed but not
committed by a second user, the query will return the data as it
existed before the change was made. The query will read the previous
version of the data from the rollback segment. If the data required by
the query has been overwritten by data from another transaction, the
user executing the query will receive an ORA-01555 ("snapshot too old")
error message.
Large and small transactions use the same rollback segments unless you
specifically use the set transaction use rollback segment command
after every commit.
Oracle allocates users to rollback segments based on the number of
users using the rollback segment.
When a transaction's rollback segment entry cannot be stored within a
single extent, the entry wraps into a second extent.