There are three rules about these smaller numerals which are placed to the left of a bigger one and subtracted:

I) Only I, X, and C can be used in this way; V, L, and D cannot and, of course, M cannot because it is the biggest numeral anyway.

II) Only one smaller number can be placed to the left. So 19 can be depicted XIX but 18 cannot be written XIIX.
XIIX would have a certain ambiguity to it as it could be construed as 11+9= 20 rather than 10-2+10=18.

III) The subtracted number must be no less than a tenth of the value of the number it is subtracted from. So an X can be placed to the left of a C or an L but not to the left of an M or a D. Another way of looking at this rule is that each power of ten is dealt with separately. So 49 is XL IX (without the spaces: XLIX), not IL.

The subtractive principle was familiar to the Romans as it was used in their calendar. Days were counted as so many before certain fixed points in the month. For example, the 9th of March was VII Id. that is the seventh day before the Ides on the 15th day (note that the Romans counted the Ides as the first day, so the 9th is the seventh NOT the sixth as you might expect).

Nowadays, we also use a subtractive principle in time when we say quarter to eight or five and twenty to nine.

These rules limit the usefulness of the subtraction rule in reducing the length of Roman numerals. Although the year 2000 is quite neat at MM, 1999 is something else...

The strict rules about Roman numerals have been used only relatively recently.
In earlier periods, although the subtractive principle was used, it seems that it was an alternative rather than compulsory and other forms such as VIIII for 9 and even IIXX for 18 are found. At any date exceptions can be found, and there are examples from different periods in Rome itself:

The Colosseum - constructed between 70 and 80 AD and known as the Flavian Amphitheatre - seated 55,000 people. The audience entered through 80 arches which were numbered 1 to 76 - the four principal entrances were unnumbered. Each spectator had a ticket bearing one these numbers and entered through the corresponding arch. It is said they could all enter within ten minutes. Only 33 doorways remain and they are numbered 23 to 54 with one unnumbered entrance. The numbers do not use the contraction IV or IX. Thus arch 29 is XXVIIII and arch 54 is LIIII. However, the contraction for 40 - XL - is used and so door 44 is XLIIII.

Roman numerals today:
The spreadsheet package Microsoft Excel has a function to depict numbers in Roman form. To get classical Roman numbers, conforming to the rules on these pages, use =ROMAN(n) where n is your number. There are four other versions of the function using progressively weirder versions of 'Roman' numbers. The fourth, ROMAN(n,4) giving what Microsoft calls the 'simplified' version. None of these four has any validity in terms of what real users of Roman numerals did and seem to have been dreamed up by programmers in Gatesville.
For live conversion of real numbers into genuine Roman numerals ROMAN(A1) where A1 is the reference to the cell containing the number you want to convert.
Excel will not display numbers in Roman format without converting them to text. But another software package, Fireworkz for Windows, will do so, allowing live working spreadsheets in Roman numerals.

Use of Roman numerals:
Roman numerals are still used today and can be found in many places:
They are still used in almost all cases for the copyright date on films, television programmes, and videos - for example MCMLXXXVI. They are also used to show the hours on some analogue clocks and watches. Here, though, the four is always depicted as IIII not as IV. That is said to be because the four strokes of IIII balance the VIII which is opposite to it on the left side of the face. One exception is one of the most famous clocks in the world - Big Ben in the Clock Tower in the Palace of Westminster where the British Houses of Parliament are located. The numerals are in lower case, gothic script and the 4 is depicted as 'iv'.

Intel, the computer chip maker, called the improved version of its Pentium processor the Pentium IV.

Roman numerals can be used for the preliminary pages of book before the main page numbering gets under way. Here they numerals normally use lower case letters so pages i, iv, xi and so on. The Olympic Games are numbered using Roman numerals. The 1996 Olympic Games at Atlanta in the USA were called the XXVI Olympic Games showing that it is the 26th games of the modern era since the first in 1896. The 1998 Winter Games in Nagano were the XVIII Winter Games. When counting Olympic Games the ones cancelled during war in 1916, 1940, and 1944 are included.

Monarchs are usually numbered in Roman - eg. King Edward VII of England, Louis XIV of France. Popes are also numbered using Roman numerals eg. John Paul II.
This form is also sometimes seen in naming eldest sons in family dynasties where successive generations bear the same first name.

Roman numerals are found in numbering paragraphs in complex documents to clarify which are main sections and which subsections so II.3.iv.(5). They are used for similar reasons to show the volume number of periodicals eg vol.VI no.5.
Before the 18th century they were widely used for the publication date on printed books. Since that time they are still sometimes found on special editions. The New York Times still does this on its front page - eg. VOL. CXLVII, No.51,305.

You will sometimes find the first and second world wars referred to as World War I and World War II or even WWI and WWII.

They can still be seen on public buildings, monuments and gravestones, sometimes when the inscription is in Latin but often just to give the date a certain gravity.
On gravestones, as well as the date of death, Roman numerals can be used for the age of the deceased.

Up until the eighteenth century Roman numerals were used in Europe for book-keeping even though the arabic numerals we use today were known and in use from around 1000 AD. There are said to be two reasons for this:
I) Adding and subtracting are very easy with Roman numerals.
II) Arabic numerals can more easily be mistaken or forged - a 0 can look very like a 6 or an 8 or a 9 or be turned into one by a single stroke.

The Roman system's one drawback, however, is that it is not suitable for rapid written calculations. Although simple arithmetic is easier with Roman numerals, multiplication and division, fractions, and more advanced mathematics are difficult and arabic numerals slowly replaced Roman ones in everyday life.