@chetocheto In so many words, yes. My position estimation code in Starship does not aim to be 100% accurate (sensor fusion and position estimation is an entire field of study to its own), so the FMS does always "know" where it is, just with an ever widening radius of uncertainty when operating without any sensor inputs. When you provide a position update, it's checking this relative to its "known" position (think of this as the centroid of the uncertainty radius), and the difference between the actual position, and your input position becomes the new uncertainty radius.
For instance, you might see something like this...
Position uncertainty: 3.2 NM.
You provide a position update via the Position Hold function, which is 0.1 NM away from the uncertainty centroid.
New position uncertainty: 0.1 NM, thereby resetting any uncertainty warnings.
Of course, during normal operation, the various sensor inputs and signal strengths are constantly influencing this uncertainty radius, and you can always augment their estimated position with a known fix of your own.