It does. I've been tinkering with Copilot Studio Agents and you can hit a 8k character limit quickly. By taking your instructions and asking Copilot to compress the information down, while ensuring they are still human readable, you can cut it back to about 5k characters. The information is more dense and functionally the same and the agent is just as consistent as before.

Anything that reduce input/output works to an extent logically.