I think you've got it pretty well. Important to remember though that that "window" keeps rolling sample-to-sample. It's not like snipping the thing into 500ms sections and adjusting them separately. There are different ways to calculate that window. Whether it is an actual window or just basically a lowpass filter ultimately doesn't matter much. Gain reduction right now depends on the last 500ms and gain reduction on the next sample is 500ms back from that. So the gain reduction is really smooth.
But yeah it reacts more to longer term volume changes and lets quicker blips get through.
More traditional compression is reacting (almost) instantaneously to the actual sample levels, but then the A/R slows down the actual movement. It's a fine but important distinction that I think is better illustrated if you think about a noise gate. If the gate is looking at a sample-by-sample level, it's going to want to open any time a little blip goes over Threshold. It'll start opening, but that'll take a little while but then it should really be closed but then THAT takes a little while and you get that weird chattering thing happening. If the gate was reacting to an RMS average, it wouldn't even bother trying to open until it gets loud and stays there for a while.
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