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The archive contains all items from the Kindle store that you've purchased but which currently aren't on that device. Think of it as your home library where books you've not carrying around on your Kindle are stored. Some people prefer not to have hundreds of books on their Kindle for ease of use so they just retrieve from the archive as necessary.
As you share an account, the books in the archive will be a merged collection of everything you both have from the Kindle store. If you have something in the archive which is still present on your Kindle then it means that Amazon have either changed the ASIN or its gotten slightly confused. Either way, items in the archive doesn't affect anything and can be ignored as it takes up zero space on your Kindle. Go to Your Orders on the Manage Your Kindle page if you really do want to permanently delete something from the archive. This will mean you have to rebuy any item you mistakenly delete however so be sure about what you're doing.
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