Actually not quite. It IS window dressing, but more randomized and realistic.
1. Yes, but different. You're not going to face a horde of skirmishers or troops with great rifles as soon as you equip your army with good rifles. you might face a larger army with meh rifles. Or a smaller army with good rifles. What it does is it equates equipment and number of both armies to a "battle rating" and then scales by modifying at random, one of those factors (equipment, men etc).
2. Mm hmm. But only if you lose far less men then they do. This is b/c now it works by a "pool" system. At random, the AI gets reinforced between battles (by either men, equipment or etc. you can tell by reading battle reports/intelligence reports). You don't know exactly what they're equipped with and don't know if they'll match you equipment for equipment but you do know an aaaapppoximate (within 5k margin of error) how much TOTAL troops they have at their disposal. The AI can choose to deploy some of this pool to the smaller battles, (within a certain limit of course) or like a real general, deploy em all at the grand battles. You can reduce this pool to decrease the overall number of AI reinforcements, but they will still get reinforced by some rando number to improve their battle rating to match your army.
3. Unsure. I only played Medium. I assume so, but it should be difficult.
4. The experience of the brigades is another thing modified or changed between battles as the AI gets a random # of reinforcements in men, equipment or veterans.
Ultimately, what happens with scaling is that you are being scaled against an equivalent army, but you don't know exactly the composition of it. Thus, surprisingly, they've actually made the reconnaissance skill quite valuable because now you have SOME info, but it's enough to tell you you don't have the full picture and thus you probably want more to figure out what they've got.