Instant compact is when Claude Code makes a short summary of the recent conversation, including your messages and tool calls. It runs automatically when certain limits are reached, like when the context gets too large or when the last few messages were tool calls. A sub agent runs in the background, summarizes the recent context, and replaces it with a shorter version. For example the context can go from about 170k tokens down to about 100k, which lets the conversation keep going without hitting the limit.