You're correct, Minecraft generates chunks around as players get near them, then they get stored on disk. To reset a chunk you can just delete it IIRC, it gets regenerated to the initial state as soon as a player comes near it.

There would be not much practical use for it I think, but in theory it should be possible to "compress" a Minecraft world by figuring out the delta between the original generated state and the current state, and then for each chunk either saving the delta or the the full chunk, whatever is smaller.