When you use the /init command in claude code, it'll scan your whole project and write a CLAUDE.md, which is basically an overview of the project contents and architecture that it uses as context when responding to queries.

Consider each session with Claude a new employee. Your Claude.md file is what it knows and how it acts out the gate. You can save memory to it or save directory links so it knows where or how to look for something.

LLMs generally work in one way. They get the prompt and give an answer. CLAUDE.md, system promp, rules, memory, tool defintions, mcps are different ways to prefix your prompt with extra information or context.

Skills, or plugins, are a way to inject less information until is needed (you can think about them as prefixing your prompt with "if you are asked about pizzas, add to context separate file pizza.md").

What you could add to CLAUDE.md depends on what you're doing. Generally it should be context LLM cannot infer relevant to all/most task performed in given project.

It's added in every chat you start with Claude for that project. It's useful for including context specific to your project that it couldn't otherwise know. High level stuff like what it's for, but also details about how the folders are organized. This saves time and tokens from rescanning the whole thing every time.