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How does ArgoCD track which resources belong to an Application?

Intermediate

Answer

ArgoCD labels/annotates managed resources with a tracking id (by default the label app.kubernetes.io/instance, or an annotation for the newer tracking method). This lets it know which live resources an Application owns, compute diffs, and prune orphans. The tracking method is configurable to avoid clashes with other tools using the same label.
# argocd-cm
data:
  application.resourceTrackingMethod: annotation
Real-world example Switching to annotation-based tracking prevents conflicts with Helm/Kustomize that also set the instance label.

Common follow-ups: Why switch from label to annotation tracking? | How does tracking enable pruning?