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All strings in the system are C-null terminated. This saves copying the bytes when calling out to C. The only time this wastes memory is when the string contains a multiple of eight characters, and then the system allocates two more words (since Lisp objects are dual-word aligned) to hold the C-null byte. Since the system will make heavy use of C routines for systems calls and libraries that save reimplementation of higher level operating system functionality (such as pathname resolution or current directory computation), saving on copying strings for C should make C call out more efficient.
The length word in a string header, See sec-data-blocks-and-header, counts only the characters truly in the Common Lisp string. Allocation and GC will have to know to handle the extra C-null byte, and GC already has to deal with rounding up various objects to dual-word alignment.