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This question just came to me now, and I wonder how people know how to find the combination to give you like infinite lives or something as soon as the game came out. Action Replay was popular in the Gamecube/Xbox/PS2 generation, even though the code that sets lives could be anywhere in a multi-gig space, with billions of bytes to search through. I suppose the answer to my question would be the same for how hackers can patch games to work for free downloading without hitting anti-copy methods a week after the game's released.
Despite this, I think AR went extinct in the Wii/PS3/XBOX360 generation, except for the handhelds, which may be zapped with the 3DS and PS Vita.
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I can't find it anymore, but I think I remember reading about how this was done before...
I think it required a special version of the console, meant for debugging and whatnot (and therefore normally only given to developers).
Of course, it's much easier to do it using emulators, so I assume that's how people create codes for any system old enough to be able to be emulated.
Also there were apparently Action Replays released for the Wii and 360, according to Wikipedia.
Of course, how the Action Replay team got those debug consoles is another thing, if you remembered correctly, as I don't think developers would sell their special debug consoles to anyone without getting paid somehow.
And that AR Wikipedia article tells me that the modern ARs are actually memory cards filled with 100% clear data for many games, instead of actual cheat devices. I have one for the Wii, but I don't plan on using it as such if I start using my Wii again.
You know they stumble upon "hey, this binary set locks the health at maximum if set to true" and they sometimes release the information out there for people to work and diddle with.