reg is a variable type that stores information until an update to the assignment occurs. It is not a physical hardware register.
In the above case, of the combo circuit, the assignment to y occurs each time the always block is entered when there are changes in the inputs a or b, the rest of the time that a and b are static y holds it's last value.
This confusion is partly why SV added logic as a replacement for reg.
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Aww, tricky beat me to it.