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The first and sentences describe exactly how I would expect it to work. The rest of this seems contradictory. Can someone explain what is actually happening?
You can save videos which will prevent them from being overwritten. Similar to what you can do on a TiVo. If you save too many videos, the flash drive will fill up.
Videos saved from sentry or manually saved start taking up space for looping (because those do not get recorded over). Eventually you won't have enough space for the loop recording and you get the red X.