Does transcoding or compression occur when importing and editing .mts (.mp4) video files?
You have control over this. If you use the correct settings, you will work on the original file.
When you setup a project you can define what Ingest Settings to use during import. Those settings can also be changed later. In your case you probably want to use Copy.

If you drag and drop a video from the Media Browser panel to the Project panel the video will be imported. By clicking the Ingest checkbox before dragging the video you can control if ingest settings are used or not. If the box is unticked, the video will remain in its folder location. If ticked, the ingest settings you have selected will be used, e.g. the file will be copied into the targeted folder location (as defined in the project settings under Scratch Disks). The wrench icon right of the ingest checkbox opens the ingest settings again.

Now to the second part: why not work on the raw file? Sometimes the codec of the source material is not suitabel for editing. If you transcode to suitable formats that use intraframe codecs you usually don't have to worry about the quality, but the video editing works overall better (here's a bit more on this).
Another reason why you do not want to directly work on the original file is if you're computer is too slow. For example if you edit 8k or 4k raw video most computers will become visibly slower at some point when they have to apply various effects. In this case lower resolution proxy videos are a great help. (here's a bit more on that topic). And don't worry, in the end, when you export your video the original videos are still there and all the editing is applied on these and so you export the good quality videos, not the proxies. You can switch back and forth between proxy and original video in Premiere whenever needed.