Excuse me for being dumb but I don't understand the mechanics of what's going on here. The brake fluid is apparently boiling from exhaust heat releasing oxygen (air) from the fluid & creating 'bubbles' in the line? Where's the fluid going that's displaced by the bubbles, into the master cylinder? I do understand that air bubbles then compress when lever pressure is applied & cause the system to fail but how is the system restored when the fluid cools down? Is the oxygen (air) reabsorbed into the fluid?
The answer to your questions is "Sorta."

Anything in the hydraulic system that is already a gas (like air) or that can turn to gas (i.e., a fluid that boils) can cause loss of braking, ranging from a spongy pedal/lever to flooring the brake pedal/lever (total failure).
The most common things in a hydraulic system that can turn to gas are air, water, and hydraulic fluid (HF)...yes, even HF can boil, although its boiling point temperature is much higher than water. The first HF was water, but soon it was changed to oil to deal with the boiling problem.
As you noted, the bubbles compress when you squeeze the lever, but the slave cylinder doesn't move the brakes (or clutch) until all of the gas has been squeezed back into liquid. If the master cylinder reaches full stroke before all the gas is turned to liquid...hello, foot to the floorboard.
BTW, when the HF exceeds the breakdown temperature, the oil molecules split into smaller molecules. The problem then: the smaller molecules boil at a lower temp than the original full-size molecules, and the fluid loses viscosity (thickness). Then the fluid can leak past the pistons in the cylinders, with the same loss of function as above. This is why I use synthetic HF; just like synthetic engine oil and tranny fluid, it stands up to high temperatures better than dinosaur juice. It does degrade over time, though, so it needs to be changed out. Since your HF already has been boiled, it's definitely time to replace it.