As far as I understand, no. They're suggesting that smaller context windows are typically cheaper (fewer input tokens over time).

I don't think so. This is a separate model, so I assume that if you just use this and switch to the 1 million context model when you reach 256k, your cache will be invalidated, so you'll re-pay the 256k tokens on the 1 million context model pricing.

Edit: I was wrong, thanks to longwave for pointing this out. It's absolutely possible to start out on the 256k model and then switch to the 1 million model when you get close to the context limit without invalidating the cache:

"When switching from k3-256k to k3 (1M), if k3-256k is close to the 256k limit and you don't want compact to lose information, you can switch directly to 1M. The current version switching from 256k to 1M does not affect the cache."