Yes, it does. Every time you add a customer pricing group to an item, it multiplies the original number of variants by how many pricing tags your store is using.
Let's say you have a product that has two options: Size and Color.
- SIZE: SM, M, L, XL
- COLOR: Red, Blue, Green, Yellow
If every color is available in all the sizes, this product will have 16 variants. There are four sizes and four color options so a total of 16 different choices, or variants. When you apply a customer pricing group to this product it will create another variant for each of your price breaks/tags, so you would then have 32 variants. If you have three tags you'd have 48, and another 64, and so on.
Shopify only allows 100 variants per product; sometimes this becomes an issue when Custom Pricing is trying to create the price tiers and runs out of variants available. If this happens, the app will skip the product when trying to create them and send you an email notification listing the product that was the issue. Also, keep in mind your Shopify plan has a limited number of variants as well depending on what plan you are on. So even if you don't max out the product's variants, you might max out your overall variants. To fix that you need to upgrade your Shopify plan to one that allows more variants.
Custom Pricing's Draft Orders method does not create variants to offer these wholesale discounts to your customers. This method may work for your store if you're running into the above issues.
Visit Switch Discount Methods in Custom Pricing for more information on how to switch.