This level is only solvable if C is the first colour to go to the empty tube, but in a real level you wouldn't know this ahead of time! The game keeps track of dead ends you've found and if every move from a state leads to a dead end it is also marked as a dead end so you don't keep checking the same options again.
The undo to live button will enable when you are currently in a dead state and undoes moves until you get back into a state that has moves that aren't known to lead to dead ends. This doesn't mean it always takes you to a winnable state, just out of the deadends you've found.