This is interesting and I would love to sail on a similar boat to mine with one of the newer pilots.
In the end the AP is driving the rudder position and all that data is distilled to turns to port or starboard. There may be software which can adapt to more or less constant eave patterns... and so anticipate turns and so forth. It's hard for me to conceptualize how confused seas and gust data can be correlated into better tracking. Sure locking the helm in one position is a bad solution to steering a course.
My old Alpha does have yaw settings and "speed of response" and I can see it making lots of corrections depending on how I set the "response" and yaw. It does S at times and it seems that a helmsman could do better.... and I often hand steer in those crazy conditions... It's kinda fun. but not for more than an hr... and they I let the AP steer.
A lot depends on the boat's hull LWL, weight and of course the conditions.
Yes, all an AP can do is drive the rudder position. However, that is all a human can do also. Modern AP's can actually react faster than a human because they get the same data faster. Some data isn't even apparent to a human - how much aware of heave are you in a long passage, or how aware of 2* wind shifts or 2kt wind increases/decreases?
In challenging conditions, I sometimes sit at the wheel with my hands lightly on it and pretend I'm steering. Every time, whenever I would start to move my hands for an anticipated adjustment, the AP would turn the wheel under them. Sometimes the AP would turn gently when I didn't think necessary, but then I realized a second later that I would have needed to make a larger correct later.
Confused seas and gusts just get translated into faster and larger corrections by the AP. Granted, these are often more reactionary corrections than predictive ones, but it is often this way for a human too. Since the AP is making calculations 100 times each second, it can react quickly to the boat going off.
All of those race boats whipping around at high speeds in the Southern Ocean, even single handers, are pretty much using commercial AP gear. The software is slightly tweeked specifically for their boats, and can take data from instruments we generally don't use (like strain gauges, multiple wind, etc) but the basic algorithms are the same.