CC absolutely does not read the context again during each run. For example, if you ask it to do something, then revert its changes, it will think the changes are still there leading to bad times.
It wouldn't re-read the context, it would cache tokens thus far which is like photographically remembering the context instead of re-reading it, until you see it "compress" context when it gives itself a prompt to recap so far:
You can tell it that you manually reverted the changes.
That said, the fact that we're all curating these random bits of "llm whisperer" lore is...concerning. The product is at the same time amazingly good and terribly bad.
