The symbology on the HUD is not fixed in place relative to the HUD. It follows your head around.
If you raise your seat so that the real horizon is seen through the upper part of the hud reflector, this is where you will see the virtual horizon. Lower your seat so that the real horizon is seen through the lower part of the HUD reflector, and the position relative to the HUD reflector glass where you see the virtual horizon will move down with you. No matter where you place your head, the virtual horizon will remain superimposed on the real one*.
Perhaps it is easier to picture if you imagine a HUD with a simple gunsight, at all times indicating the direction in which the nose of the aircraft is pointed. With a fixed physical sight, the indication would only be true when you had your eyes aligned with the sight. For this purpose, iron sights consist of a ring and a bead. When they line up in your view, you have your eyes in the right position for the ring to tell you where the nose is pointing.
With a sight on a HUD, the image of the gunsight on the HUD will always be in the direction of the nose of the aircraft,
as measured from your eyes. If you move your head to the side enough, the gunsight will slide off the edge of the HUD. Other than that, you can keep your head wherever you want and you will still get a correct sight reference.
Think of it as drawing a giant image on the outside world, at an infinite distance. This is effectively what a HUD does, although the infinite distance is achieved through optics rather than a very long brush.
Is that scary example of how a HUD does not work an actual screenshot from FS or is it a Photoshop job?
Cheers,
Fred
*) In practise, what you see can be thought of as an edge-on view of a plane through your current position and normal to a line from your current position to the center of the earth. This means that at higher altitudes, the virtual horizon will be above the actual horizon due to the curvature of the earth, as described by ICT_SLB.