What is contextual retrieval and how does it work?

Contextual retrieval, introduced by Anthropic in 2024, prepends a document-level context string to each chunk before embedding and indexing, rather than embedding chunks in isolation. The context, generated by a language model, explains how the chunk relates to the whole document, like "This chunk is from section 3 of the Acme annual report discussing revenue." This preserves document context that standard chunking destroys, improving retrieval on queries that depend on section context. It adds ingest cost but improves retrieval quality substantially.