develop creates an .egg-link file in the site-packages directory, which indicates the location of the project files. The same path is also added to the easy-install.pth in the same place. Removing with setup.py develop -u deletes this link file again.
Note that the still not found install_requires dependencies are also installed like regular eggs (they are easy_install -ed). These dependencies are not removed when the development egg is removed.
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