An S3 upload event invokes a Lambda function asynchronously, and the function throws an error. What happens by default?

Lambda retries the call itself. For asynchronous calls, Lambda puts the event in its own queue and handles retries. By default it retries twice, with a delay between tries. After that, Lambda drops the event, unless you configure an on-failure destination or a dead-letter queue.

"S3 retries the upload, which triggers a new event" is wrong. S3 does not resend the event. The retry comes from Lambda.