Hi NSEU,
"The altitude used [by the FCC] is inertial altitude from the IRS with a baro correction added, [which is] based on the difference between 29.92 altitude and baro altitude from the ADC. The baro correction is latched at mode engage, so that subsequent baro correction changes do not affect operation."
I think this mode is only available when in "ALT Cruise" (or the equivalent). If you are in "ALT" and change the pressure setting on your Altimeter, the aircraft will follow the Altimeter. Once in "ALT Cruise" the aircraft will not follow an altimeter subscale setting change, but remains at an altitude referenced to the subscale setting when "ALT Cruise" engaged. I think there is some vertical IRS information used in the calculation.