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I can't tell you what the characters DO, but as far as technical aspects are concerned, it's really as "simple" as intense coding that goes outside of the world itself. Undertale is not the first game to do this. Not by a mile. Oneshot implemented this aspect before UT and there are various examples.
on May 06
YES, well, depends, certain charactures remember certain things such as a few saying they remember your face or having felt like they have done this before if you reply it, plus if you do the genocide before pasifist run, the game will remember and Chara comes back at the end
on June 25, 2016