It’s all software from what I understand.
Basically they take a host of weather data from dozens of the closest personal weather stations around your home and I assume some trusted weather forecasting services and then interpolate the data for your exact latitude and longitude. This provides a unique to your location guess as to past temp & rainfall and future weather. It still isn’t a certainty (you will still do better with a PWS on your property) but it’s better than just picking the nearest PWS and using that as various PWS may have inaccuracies and it is showing weather at THAT location, not yours, even if close by.
Maybe to make it clearer this is my guess… let’s imagine a world where there was a weather station 1 mile north of you that said it got 1 inch of rain. Then there was a weather station 1/2 mile south of you that said it got 2 inches of rain. It then would average the two and give more credence to the closest one and perhaps guess that your home got not 1.5 but maybe 1 3/4 inches of rain (because the 2 inch result was closer but north of you it was less so you likely didn’t get the full 2.) I’m sure it does this with not 2 but the dozens of PWS stations around you. It still is a guess, but its a better guess than just picking the closet. It also help balance the inaccuracies that some Personal Weather Stations may have.
Clear as mud? Also it is pretty clear that it is a business decision to limit this to Rachio 3 users, not any hardware in the unit itself but they have to have enticements to upgrade to maintain their business and if you aren’t excited about the Flow meter they had to have a few extras to drive sales. I’m ok with the choice.