Is G-code read line by line?
Yes, G-code is read line by line. G-code is a numerical control programming language. It basically instructs the machine sequentially line by line to do a specific task. The printer than executes the lines one by one until it reaches the end.

If you instruct the printer to wait (G4 dwell), it will do the wait/dwell first and than will execute the next command to retract the filament. As such, your examples will not work if you want to retract the filament during the pause, you reversed the process if you want to achieve that.

To add a pause (simple) for e.g. filament changing, you should instruct the head to go to a certain position, extract the filament, and now insert the pause/dwell command. Give yourself enough time to insert and prime the nozzle and go back to the last location to continue printing. 

You could insert something like (e.g. in between layer change, before G1 Zx.xx):

...
G1 X0 Y0 F2000 ; Relocate the print head
G1 F4000 E-50 ; Retract filament
G4 P40000 ; Wait for 40 seconds
G92 E50 ; The new filament should continue at this value
...
G1 Zx.xx


Depending on what happens after G1 Zx.xx, you may need to set the head back to the location prior to where it was before G1 X0 Y0 F2000.

Do note that there are pausing scripts/plugins available for e.g. Ultimaker Cura, and there is also a filament changing command M600 that can be enabled for certain firmware (if this is your ultimate goal).

Using a post processing plugin of Ultimaker Cura, a pausing script looks like:


...
G0 X137.692 Y105
;TIME_ELAPSED:707.873599
;TYPE:CUSTOM;added code by post processing
;script: PauseAtHeight.py
;current z: 5
;current height: 5.0
M83
G1 F300 Z6
G1 F9000 X190 Y190
G1 F300 Z15
M104 S0; standby temperature
M0;Do the actual pause
M109 S200; resume temperature
G1 F300 Z6
G1 F9000 X133.423 Y105
G1 F9000
M82
G92 E911.50045
;LAYER:24
G0 X137.692 Y105 Z5
...


Note that G0 and G1 are "move to" location instructions (albeit through a different way, fast move and linear move respectively). If you look closely, you see that after the pause, the printer returns to the X-Y position where it left prior to the pause (X137.692 Y105).



Side note:
Some firmware flavors allow buffering, but each statement is executed sequentially.