For instance, does the compiler know to translate
string s = "test " + "this " + "function";
string s = "test this function";
Yes. This is guaranteed by the C# specification. It's in section 7.18 (of the C# 3.0 spec):
Whenever an expression fulfills the requirements listed above, the expression is evaluated at compile-time. This is true even if the expression is a sub-expression of a larger expression that contains non-constant constructs.
(The "requirements listed above" including the + operator applied to two constant expressions.)
See also this question.