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what is In session file?
When you open a file (part, assy, drawing) and then close the file, they are still in memory or "in session". If you re-open the file, it is not re-opening from the hard drive, it is opening from what is in memory.
You can erase objects from memory (in session) by using FILE - MANAGE SESSION - ERASE NOT DISPLAYED. Anything you haven't saved, will be lost.
To add to what Stephen said, Opening files will look for files in this order:
In Session - You had the file open earlier and closed it but did not erase it.
Working Directory - Either your Windchill workspace or your currently defined Working Directory. Working directory may not be your Start-in directory.
Commonspace or search path - If Windchill, the system will search and download the file to be opened. If no PLM, the only system will only look in your Working directory, unless it is an assembly and then search paths will be search for components not in the working directory.
To add to what Ben said ...
In between "in session" and your working directory, Creo will look in the folder the parent object came from. So, if you have your working directory set to folder WD and you open an assy from folder AF, Creo will look for the components in session first and then in AF before WD.