Yes, continually diluting the mix like this encourages the organisms (bacteria, yeasts, fungi) to have more constant conditions (maximum nutrients, fewer waste products) and be in log phase growth. The mix selects for particular faster-growing organisms. if you did not dilute, the nutrient levels would change (lower) and waste products accumulate much faster. Then the conditions would be more different day-to-day.
Practically, the dilution adds more nutrients while still allowing the pH to fall. Without the dilution, particular bacteria tend to take over and lactic-acid producers dont get a chance.
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