OTA update itself doesn’t reset WiFi and configurations, what does is the firmware change across major revisions, such as from 2.1.9 to 2.2.0. If you are updating the firmware within the same revision (i.e only the minor revision changes), then it doesn’t reset WiFi and configurations. For example, updating from 2.2.0(1) to 2.2.0(3) will preserve all settings. The main reason updating across major revisions wipes out flash is that usually these major revisions involve major flash memory changes or partition table changes (for example, the file system on earlier firmwares used SPIFFS, now it’s LittleFS), as a result, a flash memory wipe-out is necessary and cannot be avoided.
For that reason, we try to keep new firmware updates within the same major revision, until it becomes necessary to change the flash layout again.
There is no EEPROM on ESP8266 — all files and data are stored in flash memory. The module (ESP-12F) has 4MB flash, among which 1MB is used for the firmware, 1MB is for OTA update buffer, and 2MB are left for data.