Yep, what you've described seems accurate to me.
The plugin checks the effects list for something interesting, whenever an effect event occurs. If an interesting event appears, it updates the event and timer. After that, the timer ticks down, and is removed on end.
For untimed effects like marks, it will remove the tracked effect after 5 seconds on "not seen". This is triggered on an effect event.
For single player, this means an effect may not appear for several seconds, even though it's clearly on the target. I suspect the appearance of interesting effects will be better with larger groups, simple for more events occurring thus generating more updates to the event list.