Versioning: Design APIs to allow versioning to handle backward compatibility when?

Short answer: evolving the service.

Example code

A User Service might have a POST /users to create a new user, and GET /users/{id} to fetch user details.

Real-world example (ShopNest)

ShopNest splits Catalog, Cart, Order, and Payment into services so teams can deploy catalog changes without redeploying payments.

Say this in the interview

1. Define — one clear sentence (the short answer above).
2. Example — relate it to a project like ShopNest or your real work.
3. Trade-off — when you would not use it.