The Drafts item brings up a menu of draft versions specific to the current element.
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The current active draft is indicated with a green icon. Selecting a draft from the menu makes it active and the main text writing window will update with its contents.

Choosing the Create New Draft item will generate a new draft with the content of the currently active draft. The new draft will also become the new current active draft, ready for editing or writing.

Draft versions are indicated by the draft picker in the Element Settings. Draft versions are identified by an incrementing number. The first draft has a version of 1, the next draft 2, etc.

Tapping the trashcan icon will delete the corresponding draft. NOTE: You cannot delete the current draft (indicated in green), and you will not get a confirmation. Make sure you have a backup in case you delete a draft you need.

You can see more information about drafts here.