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A reset restarts the processor from a particular memory location. This is in read-only memory, but often is just flash memory I suspect. The first instructions it executes would be to test if the other button is being held down, and if it is, branch off to do a factory reset.
If this doesn't work, then, either a hardware failure has occurred or this ROM has been corrupted. The ability to "brick" many modern devices when doing firmware upgrades, suggests to me that the ROM, is indeed flash memory, and can be corrupted
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