Once you see that message it's time to finish the task without AI because Claude will start crapping over your codebase if you let it continue.

I just got burned by that, it compacted and then immediately dropped what it was in the middle of working on to redo something it had already finished half an hour earlier. Which, predictably, sent it into "systematically destroy the entire working codebase" mode because the code it was now reading didn't match expectations of the original instructions. So it started extrapolating like "huh, it looks like the function already exists, therefore, user must have meant [bizarre completely out of left field guess] instead" in an escalating loop of confusion and code mangling.