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I've read in the manual that doing so grants you a "continue", but I don't know what that means. It can't just be giving you an extra life, since the vases you collect already do that. Even when I managed to collect the first level's letters, they didn't seem to do anything when I finished the stage.
...I'm playing the PC version, for what it's worth.
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I haven't played this game for over 20 years, but isn't it like in many other old platformers that you can use a continue after running out of lives? Usually lives puts you back at the beginning of a level or at a checkpoint, while continues pushes you further back like to the beginning of a world, plus in games that keep track of points and such things they're usually reset.
Also, does vases really give you an extra life? According to TVtropes the vases are more used as a save system in that you're given a password at the end of that level.
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