In fact when youtube started the entire file would be downloaded to /tmp/. And it was this way for a long time. Then the lawyers heard about it and instead youtube would download the file then delete it and read from the filehandle of the deleted file. Then flash went away. And the replacement video streaming services would send chunks that would be on disk and then the lawyer pacification process repeated and now everything is only stored "in ram" but often, and on many systems, that isn't true either. But it's enough to keep the lawyers calm.
Yes, that's exactly what it means.
yt-dlp, as far as I know, always asks for the same consistent quality/bitrate of your choosing (and saves them to disk and joins the segments and muxes the video and audio into one stream)
But yes, everyone should be not deleting the videos they've downloaded.