Tracked changes
A feature of the editor rather than a kind of document — and the reason a redline and a set of tracked changes are not interchangeable.
What it is
Tracked changes is a mode in a word processor. With it switched on, the editor records every edit as it is made — each insertion, each deletion, each formatting change — together with who made it and when, and keeps the original text alongside the new text so either can be restored.
It is a feature of the program, not a kind of document. The same file looks like a marked-up draft or a clean one depending on how the reader's copy of Word is set to display it, which is the source of a great deal of confusion and at least one story everyone in the profession has heard.
Not the same as a redline
A redline and a set of tracked changes look alike and are produced quite differently.
Tracked changes is a record kept as the work happens. It knows who typed what, in what order, and it is only as complete as the discipline of the person editing: if they forgot to switch it on for an hour, that hour is gone. A derived redline is a comparison made afterwards between two finished versions. It knows nothing about authorship and cannot miss anything, because it is computed from the texts themselves.
That is why a comparison is worth running even when the other side sent tracked changes: it answers a different question. Their markup shows what they meant to change; a comparison shows what did change.
What travels with the file
Tracked changes are stored inside the document, along with author names, timestamps and any comments. That metadata travels when the file does, which is useful within a team and awkward outside one — it can reveal how long something took, who overruled whom, or that a clause was copied from another matter.
Removing it is a deliberate step, usually called scrubbing or cleaning the document. It is not the same as accepting the changes, and doing one while believing you did the other is a common and expensive mistake.
Accepting and rejecting
Each recorded change can be accepted or rejected individually, or all at once. Accepting every change and turning tracking off produces a clean copy: the same text, with no record of how it got there.
Redline Pad does not produce tracked changes, and does not read them. It compares two pieces of text and shows the difference. If what you need is a Word file with revisions that the other side can accept one at a time, Word's own Compare is the tool for it, and it does that job well.