My revising and editing process varies. I don’t believe there is one set way to edit, revise, or redraft because it depends on the story you wrote, how well you wrote it, and how many large changes you need to make. So I am not trying to say that my way is the best way in this post. This is the first time I’ve revised a manuscript in this manner, and I’m simply sharing the process.
Point of View
Draft one of The Sword of the Witch only had one point of view. In draft two, I added a secondary character who got POV chapters. In draft three, I added yet another storyline told from another POV character. Judging by POV alone, the distinction between each of my drafts is clear.
Writing, Editing, and Rewriting
The new POV chapters are basically first draft chapters. I write them from nothing.
I’ve been able to copy over some of my better chapters from draft two directly into draft three. Those chapters get copy pasted and thoroughly edited. They end up very polished, just like you’d expect from a third draft of a manuscript.
Other chapters I have to rewrite. Whether because of changes I’m making or because the original chapter was crap, I choose NOT to copy the old material over to the new draft. I write in Scrivener, so I’ll have the draft two chapters open as Quick Reference windows while I draft the new one. I can usually copy bits of lines or even a whole paragraph directly from draft two, but rarely more than that. During rewrites, I focus on transferring the theme and content of the older version rather than specific words. These chapters ALWAYS end up better. And typically shorter. So even though they are new, they probably finish around a draft two or draft three level of quality.

The work involved in creating draft three of The Sword of the Witch is varied and interesting, to say the least. I get to enjoy the excitement of writing, the delight of reading mostly-polished chapters, and the accomplishment of getting that much closer to having a finalized version of this WIP!
For more about editing, check out this post: Why Revise?