In the chat sidebar dialog there are two submit buttons. The one labelled "chat" cannot edit the active file and when you chat using that submit button it doesn't understand your code base.

The submit button labelled "Codebase chat" on the other hand can update the active document and has knowledge about your project.

In the codebase chat dialog it will print the suggested changes and then you must press the apply button next to the suggested change. then it will apply the changes to the file in a git compare kind of way with red and green colors. Finally you must accept each of the red/green changes and the file will be updated on disk.