In the olden times, aka like two years ago, AI chats would just stop working or just start slicing off the oldest parts of the context to fit the model's window.

That said, compaction feels like an idea that should work reasonably well, but across all of the major providers and agent tools I've used has never actually produced compelling results, to where if I see I'm getting close to the token limit I prefer to start putting a bow on the project and readying it for a fresh start. Even when I provide a detailed compaction prompt it usually focuses on the wrong stuff.