Downgrading an account

If I currently have a plan with 3GB and the storage is 33% full(10002MB) and I decide to downgrade to a free account, what will happen? Will my application not work anymore? Will my files be deleted until the free limit, 500MB? Or will they still remain on the web?

All of your data will be safe, but you won't be able to create new files or write to existing ones. That means that your application probably won't work any more if you do that, because most code is likely to try to write to disk at some point -- but if you upgrade again, things should start working once more.