How do TypeScript discriminated unions with never type guards enforce complete error handling exhaustiveness at compile time?

type ApiResponse = 
  | { status: 'success'; data: User }
  | { status: 'loading' }
  | { status: 'error'; code: 'NOT_FOUND' | 'VALIDATION' };

function handleApiResponse(response: ApiResponse): void {
  switch (response.status) {
    case 'success':
      displayUser(response.data);
      break;
    case 'loading':
      showSpinner();
      break;
    case 'error':
      if (response.code === 'NOT_FOUND') {
        show404();
      } else if (response.code === 'VALIDATION') {
        showValidationErrors();
      }
      break;
    default:
      // TypeScript errors here if new status added
      const exhaustiveCheck: never = response;
      throw new Error(`Unhandled status: ${exhaustiveCheck.status}`);
  }
}