I'm trying to set this up and I'm confused because of how I saw it, so I might need an ELI5 version.

I am trying to upcycle Quality Module 1s early game. I have an assembler constantly making and putting them in the condenser. A lot of times, nothing happens. Then, it will suddenly void all of the modules inside it's inventory and a higher quality one is made.

Is this the intended way this works, or should I be setting something up to remove and put the same one back in if it fails to upcycle?

sounds like it is working as intended.

if the machine itself has 1% quality, then it will wait until there are 100 of the same item in the condenser and turn that into 1 of a higher quality.

how did you think it would work? it might help me write a better mod description.