You understanding of the way it works is correct. Both the wording the documentation has and your wording mean the same. First SQL determines the datatype of the expression (before doing the AVG) and then uses the chart to determine the result of doing the AVG. If you are doing the AVG of a column, the datatype of the expression is just the datatype of the column. But if the expression is a calculation, it determines the datatype of that calculation and then uses that to determine the result of the AVG.
Tom