It is handled differently by different cultures. I know that in Europe it was common for old graves to be dug up and the bones placed in other places. The Catacombs in Paris is one example. Another method used was to dig up the old graves and then dig each one deeper putting the old bones down there and then putting a new burial on top of them.
It will depend on the cemetery you are looking at in particular.
In some, when the cemetery is full, then that is that – the existing space will be preserved as it is (often with additional burials in existing plots, where families wish to be buried together), and the cemetery will be extended or a new one opened up elsewhere to continue.
In other places, cemeteries are emptied periodically. In Singapore for example land is at a premium, so burial is temporary – for a period of 15 years. After that time the bodies are exhumed and cremated, and then interred in columbaria niches which are much more space efficient. The graves are then reused for future burials.
Those are just two fairly extreme options, and you will also find various other systems in place depending on the culture and religion of a specific country or cemetery.
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