Yep thats how FLAC/ALAC works. But not MP3, AAC, or any other lossy format. I don't need you to tell me how zip files work, I'm a computer programmer.
Maybe this will help you understand it-- zip file compression is a *lossless* compression (like FLAC and ALAC) meaning that when you decompress it you have the exact same data that you had prior to compression. MP3/AAC compression on the other hand is a *lossy* compression meaning once it has been compressed the original data can never be recovered.
Up-converting mp3s to FLAC is like using a digital camera to take a raw photo of a compressed jpeg image. Sure, the resulting digital photo is the same file size as any other raw photo taken with that camera but does that mean the jpeg image you took a photo of is now magically full quality and uncompressed?
Well said, and yes this is true