Yup, vastly improved over spacial tech they had going on. Which though was okay, though gave results not much better than a simple sharpening filter, without effecting the UI, text etc. At best FSR 1.0 felt like AMD's stop gap solution and marketing device to push their branding for its own upscaling tech until their true FSR (2.0) was ready - their answer to Nvidia's DLSS.
Moving to a temporal upscaling was the only way to go. With the the industry moving towards better upscaling techniques, this is pretty much what was needed from them. They were falling behind behind Nvidia in many key areas like having a good upscaler though now its looking a lot better for AMD. Granted they still need better Raytracing performance - something we've been hearing from 'insiders' that RDNA 3 will fix that.
For the graph, is the internal resolution before the upscaler does its thing and the output resolution is what is displayed on screen as an output. So for me I have a 1440P monitor. When I enable FSR 2.0 on a compatible game, at quality setting.. it will render the game at 960P and upscale it to 1440P and it should (should FSR 2 work as intended) give image close to native or better with anti-aliasing applied.