After escalation in support it turns out this is a known issue but it is working as designed.
Although the incremental backup will eventually make 25 folders containing all the file names that were in the source folder at the time of the backup, it isn’t actually duplicating indentical files but making short-cuts to the actual file (even tough it doesn’t look like a short-cut through the window browser). It simply gives you a user friendly interface to find that file from up to 25 backups ago. The way to check this is through the My Cloud Mirror dashboard, selecting the share the back-up is in and seeing the usage amount, which should be a little over 1/25th of the final backup folder.
It does mean you are not getting up to 25 versions of every file, but only 25 backup events. For instance if you were working on a file over a long period of time and then stopped working on it, meanwhile your incremental backup happens 25 times, you would no longer have any versions other than the latest version in your backup destination.
It is a shame that the user manual doesn’t explain how it works.