Yes, I believe that it did operate based on RPM and not MPH. I think that it resolved the gear shifting situation by essentially only going into "louder mode" when your RPM reached a point that was presumably overdrive (it seems to essentially be designed to counter highway road noise) or getting there.

I think that it only made one (or possibly a very small number) increment to the volume, it didn't scale it.

The car that this was in generally stayed low on RPM, so this feature wasn't hugely useful. Generally I had it set on its lowest modifier setting so that the difference wasn't huge.

Incidentally, I still have the unit and I'll look in the manual to see if I'm missing something about its functionality.