it has to decompress it to a PCM wave file, you can't edit compressed audio, its not technically feasible.
so yes, the answer to your other question is (I read minds :-)) that there is some quality loss when re-saving as mp3. if you are very fussy then only save to uncompressed PCM wave while working on your file, and when you are ready to master the final production, only *then* should you save to mp3 format.