...

Answer:  When you process the partial refund for the item(s) in the order, the quantity of the refunded item(s) are adjusted to zero, which effectively removes the refunded items from the fulfillment process. The items remain in the order record after the refund for 'audit trail' purposes, and cannot be removed entirely from the order record. If you edit the items in the order record, the refunded items will not display the "Remove item" and "remove Item and Continue Editing" buttons, for this reason:

Example view in the Item Editor of how refunded items will appear versus non refunded items

Related Documentation

Understanding Period Sales reports and refund reporting

...