As you view your photos a size optimized for your display will be downloaded. That larger (bigger than the thumbnail) photo will remain on your device in that resolution until its forced to be reduced. The forced reduction comes from the need for the space. As you can tell though, even thumbnails need space on your device.
If your collection continues grow you will be faced with a decision to move to a phone with more storage space or move to a service that allows photo access without having anything on your device. A service like Flickr or Amazon would give you storage without using space on your device. You lose the integration of the photos app but you gain space on your device.