I don't use Cursor so I can't say, but based on what I've read, they optimize for smaller context to reduce cost and probably for performance. The issue is, I think this is severely flawed as LLMs are insanely context sensitive and forgetting to include a reference file can lead to undesirable code.

I am obviously biased, but I still think to get the best results, the context needs to be human curated to ensure everything the LLM needs will be present. LLMs are probabilistic, so the more relevant context, the greater the chances the final output is the most desired.