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Brake fluid maintenance

Does the fluid in the master cylinder reservoir circulate to the slave cylinders or does it serve only as a reserve if fluid is lost to the system?

Both. Eventually all the fluid in the system mixes together. The main purpose is a reservoir, but mixing does occur. There is no barrier between the fluid in the lines and the fluid in the reservoir tank.

The fluid mingles by the process of diffusion, but particulate crud obeys gravity and tends to settle in the lowest parts of the system.