When the leaders of the major allied powers from the US, Britain , and France, met at Versailles they wanted to make sure that another catastrophic war like the one that had just happened wouldn't happen again. They wanted WWI to be the war to end all wars. They also wanted this ending to the war to be one of peace to go with this new found idea to end all wars, but some of the leaders there wanted to punish Germany for its involvement in starting the war.
The allies wanted to insure that there would be no more world wars like the one that had just occurred. They thought that only large nations with powerful armies posed a threat to this new idea of peace. The only option they thought of to prevent any more catastrophes like this was to take away the military power of any country that posed a threat. Since Germany already had threatened the peace of the world its military was targeted for de-militarization. They were allowed to keep some military power in the form of a small army for which to defend itself with, but its air force and its navy were either severely reduced or taken away all together.
The territorial losses for Germany were another result of the treaty of Versailles. The leader's arguments for these territorial losses was that if Germany was allowed to keep control over other areas it might get enough power to rise again as a world power and might threaten peace for the world again. The German colonies of other continents such as Africa, the German regions of Alsace-Lorraine, and the SAAR region were taken away from Germany.
The last but not the least effect of the treaty of Versailles for Germany was the incredible amount of reparations that were paid out to the other countries for the damages done by Germany. The other leaders figured that if Germany was there to do the damage to these areas, then it had to be there to pay for it afterwards. The other countries also figured that if Germany had to pay this large amount of money out to them then it didn't have much money for itself, this would make it very hard to advance industrially and also pose a threat militarily later on.