“Changes” encompass more than you think. Creating / Deleting files are also changes, not just edits to a file.

• If the change is an edit to a tracked file, “Discard Changes” will reverse the edit.
• If the change is deleting a tracked file, “Discard Changes” will restore it back.
• If the change is a new untracked file, “Discard Changes” will remove it as intended.

It can also be all of them at the same time, which is why VSCode uses “Changes” instead of “Files”.