Does Compose use KSP?

Compose uses a compiler plugin. KSP is built on the same compiler plugin infrastructure that Compose uses, but they are completely independent.

also, compose cannot use KSP because it modifies your code while KSP can only generate additional code

Yep, and in general, I think the philosophy of KSP is to provide a more limited, but simpler and arguably easier to learn, API, that targets the same set of use cases as annotation processors used to. Full-fledged compiler plugins let you do virtually anything (parcelize, kotlinx-serialization are also compiler plugins).