Good question, the files are grabbed on demand from the server so the agent can fetch everything it needs to run tests, a dev server, or anything it does normally. Now this might be slightly slower in some cases where the history is short, but the bigger the repo and files the more this makes sense. So the full code is available and buildable, just over the network instead of locally.

Another thing, inside these mounts build artifacts and directories like node_modules can act kinda weird, so we just have some extra context in the AGENTS.md to host these in a different location from the mount. or agents usually figure this out on their own in my experience.