Python (at least the most common implementation of it) follows a pattern of compiling the original source to byte codes, then interpreting the byte codes on a virtual machine. This means (again, the most common implementation) is neither a pure interpreter nor a pure compiler.
The other side of this is, however, that the compilation process is mostly hidden -- the .pyc files are basically treated like a cache; they speed things up, but you normally don't have to be aware of them at all. It automatically invalidates and re-loads them (re-compiles the source code) when necessary based on file time/date stamps.
About the only time I've seen a problem with this was when a compiled bytecode file somehow got a timestamp well into the future, which meant it always looked newer than the source file. Since it looked newer, the source file was never recompiled, so no matter what changes you made, they were ignored...