"Shrinking" the log is actually "clearing" the log.
The log is basically a list of operations that have been performed, and is used as a reference for rollbacks, restores, checkpoints, etc.
The space wasn't "unused" but it contained transactions that had been committed and were reflected in the backup that was performed.
Your boss cleared out all the transactions in the log file, but since you had just run a backup this is acceptable since none of those transactions were uncommitted.
Seeing that the recovery model is set to simple and msdn states that the simple recovery model does not support point-in-time recovery - Does this mean that I won't be able to use my transaction log backups to restore the database in a disaster to an hour before it happened?
Even taking a transaction log backup is not supported for databases using the SIMPLE recovery model. This is a restriction of the database engine based on how this recovery model works, and the recovery features it doesn't support, as you mentioned.
A transaction log backup maintenance plan task automatically skips databases in SIMPLE recovery to avoid causing errors.
Which backup should be done first, the database backup or the transaction log backups? Articles that I'm busy reading say I should do the database backup first and then the transaction log backup else I will get maintenance plan errors, but I'm currently first backing up my transaction logs and then data databases and I'm not getting any errors.
For the reasons I mentioned above, it won't matter for databases using SIMPLE recovery, as they will be skipped by the transaction log backup task.
For databases in the other two recovery models, a full backup must exist before you start taking transaction log backups (just the first time), or you will get an error -- this is probably what the articles refer to.
Point-in-time recovery ability is normally driven by business need -- in other words, you determine how critical the data is and how much you can afford to lose, then set the appropriate recovery model to meet those needs, and finally create a backup solution.
Even though SIMPLE recovery does not support point-in-time recovery, if an hour of data loss is okay, perhaps a differential backup solution could work for you. (There are far too many variables that go into developing this kind of solution to give you a complete picture with what was provided in the question.)
Best Answer
When you switch the recovery mode to shrink the log file you are invalidating prior backups because it breaks the log chain. What you need to do it switch it to simple, shrink it down to what you want, then switch it back and set up regular log backups (I would recommend hourly) in addition to full backups. When a log backup is performed the log is truncated (note, not shrunk. it will remain the same size on disk) and then the database will be free to re-use the space at the beginning of the file instead of appending to the end of the log file and causing file growth.