It sees the ratio of air to fuel, that is why cat's do not effect measurement. If it sees the O2 is staying constantly rich(er) then normal, it will begin to compensate with the short trims, then it'll soon roll over to the long trims, slowly taking away fuel based on the long term trims.
Chip a piston and drive it for 200 miles, you learn alot of data logging. It should hover around stoic, rich to lean, yadda yadda, but when you pop a piston, you can cleary see the uncombusted mixture (the output is not your typical sine wave pattern)