can anyone explain why oil separation in a curry is indicator that the food is cooked?
The oil separating out of the milk both gives the final dish a glossier and more colorful appearance, and intensifies fat soluble flavor and pigment compounds (such as capsaicin). The separation primarily indicates that the flavor development of the sauce is done. Many recipes may simply be timed so that this will coincide with when the other ingredients finish cooking. It may be traditional wisdom that this indicates that all of the ingredients have finished cooking, but there isn't really anything special about the milk separating that indicates that, as the coconut milk is also sometimes cooked to separation prior to adding other ingredients.