What Actually Happens When Claude Says "Compacting Our Conversation"

You're deep into a conversation with Claude when a message pops up: "Compacting our conversation so we can keep chatting." What does that actually mean? What's being compacted, and how? If you're a user, understanding this will explain most of the strange behavior you've noticed in long conversations. If you're building AI applications, this is the most important engineering problem you're not thinking about yet. The context window is a budget Every LLM has a context window: the tot...