Debris in a degrading orbit

[Bingleberry]

So, just a general gameplay question about how the game treats things in orbit that are not being directly observed. 
 

I’m relatively new to KSP, so I wanted to play around with some aerobraking on my return from an interplanetary mission. Once I was confident I had set my periapsis at a proper altitude, I ditched my booster and placed my CM into the degrading orbit... eventually resulting in my CM landing on Kerbin. Since I ditched the booster on my first aerobraking pass, it drifted so far that it was outside of “physics range” by the time I made re-entry. Based upon the fact that my CM successfully aerobraked, and re-entered, I assumed that my booster would have a similar, albeit slightly more destructive, fate. After giving it little thought, and after a few in game years, to my surprise, I see debris on a suborbital path around kerbin, but the debris never appears to drop from orbit (when viewed in the tracking station).
 

The question, if things are outside of “physics range,” or not being directly observed, do things like atmospheric drag, or craft/debris collision not happen?

 

 

[Stamp20]

If it's not in physics range, KSP puts it "on rails" and doesn't do any sort of collision or physics.

[Rhomphaia]

Indeed not. unless you focus, on it or get within physics range, it just stays on rails forever.

Unless it gets too close to the surface (under 20km on kerbin) then it just disappears.