Your "thinking" is consistent with what I am seeing with the unit. LED bar graph connected directly to the cell output, showing raw cell voltage (ergo: remaining capacity), and then three selectable PWM algorithms.... with the highest setting perhaps having no pulses at all.
Another on another thread was suggesting that the 4.2V is still only the 'off charger' voltage, which then immediately goes to 3.7v - though he hadn't tested it.