3
Almost.
When a theme is uploaded and chosen as the current theme, it is interpreted (or compiled) into a PHP file, which is placed in the templates_c directory. When XOOPS subsequently needs to display a page with this theme, this compiled file is loaded. If it does not exist, it will be regenerated.
In order to get the changes to show up, you will need to enable the "Update module templates from themes/yourtheme folder" setting in system admin -> preferences -> general settings. This means that no matter if the theme's theme.html is already compiled or not, it will be regenerated - so remember to turn it off, when you are done with it, for better performance.