Yeah, the engine flushes the level memory.
For example, say you had a desert with lots of trees that eats up 30MB of RAM. You fall into a hole, and 3DGS loads a dungeon. The 30MB used would be freed, and then GameStudio would allocate memory for the new level.
I think if you press F11 you can see debug stats. I'm not sure, I used F11 in A6, not sure what it is in A7...