How does Windows determine/handle the DOS short name of any given file?

I have a folder with these files:

alongfilename1.txt <--- created first
alongfilename3.txt <--- created second

When I run DIR /x in command prompt, I see these short names assigned:

ALONGF~1.TXT alongfilename1.txt
ALONGF~2.TXT alongfilename3.txt

Now, if I add another file:

alongfilename1.txt 
alongfilename2.txt <--- created third
alongfilename3.txt

I see this:

ALONGF~1.TXT alongfilename1.txt
ALONGF~3.TXT alongfilename2.txt
ALONGF~2.TXT alongfilename3.txt

Fine. It seems to be assigning the "~#" according to the date/time that I created the file. Is this correct?

Now, if I delete "alongfilename1.txt", the other two files keep their short names.

ALONGF~3.TXT alongfilename2.txt
ALONGF~2.TXT alongfilename3.txt

When will that ID (in this case, ~1) be released for use in another shortname. Will it ever?

Also, is it possible that a file on my machine has a short name of X, whereas the same file has a short name of Y on another machine? I'm particularly concerned for installations whose custom actions utilize DOS short names.

Thanks, guys.

The short filename is created with the file. The algorithm works like this (usually, but see moocha's reply):

counter = 1
stripped_filename = strip_dots(strip_non_ascii_characters(filename))
shortfn = first_6_characters(stripped_filename)
while (file_exists(shortfn + "~" + counter + "." + extension)) {
    increment counter by 1
    if more digits are added to counter, shorten shortfn by 1 
    /* e.g. if counter comes to 9 and shortf~9.txt is taken. try short~10.txt next */
}

This means that once the file is created, it will keep its short name until it's deleted.

As soon as the file is deleted, the short name may be used again.

If you move the file somewhere else, it may get a new short name (e.g. you're moving c:\somefilewithlongname.txt ("c:\somefi~1.txt") to d:\stuff\somefilewithlongname.txt, if there's d:\stuff\somefileelse.txt ("d:\stuff\somefi~1.txt"), the short name of the moved file will be somefi~2.txt). It seems that the short name is only persistent within a given directory on a given machine.

So: the short filenames will be generated by the filesystem, usually by the method outlined above. It is better to assume that short filenames are not persistent, as c:\longfi~1.txt on one machine might be "c:\longfilename.txt", whereas on another it might be "c:\longfish_story.txt"; also, when a file is deleted, the short name is immediately available again.