Any guesses on how this Caller ID "feature" works?

Old AT&T cordless phone. EL52309 (2009ish). Incoming calls show full 10 digit# 123-456-7890. While reviewing received calls all 10 digits are displayed EXCEPT if it’s MY area code of 123. Then it just displays 456-7890. The phone does not know my area code (I don’t think).

Either that’s all the telco is sending, which I doubt, or more likely, you set it up when you got the phone and forgot.
From the manual:

If you dial seven digits to make a local call (no area code required), enter your area code into the telephone as the home area code. When you receive a call from within your home area code, the caller ID history only displays the seven digits of the telephone number.

See page 13:

Thanks. The Dope comes through again.