Thank you to everyone that responded. For all practical purposes in AH2, dtango's explanation should be used. If you are a pilot, or an overly picky person (or both in my case) there are 2 minor caveats I would like to add.
If you do not fit the above description, please read dtango's explanation and do not read further as the following is unnecessarily picky. But, these minor details had me severely confused about something I am rated to do in real life, so for the benefit of those few, here is my analysis.
1) The RPM increase and RPM decrease commands do just that. They set RPM *not prop pitch*. "But those are the same", you say. For all practical purposes yes. In reality, however, there is a slight disconnect. For example, at full throttle sitting on the ground, dragging the prop down into feather (dramatically and rapidly increasing the pitch) causes an increase in manifold pressure. This is not simulated. This is because the actual pitch changes aren't simulated, just the RPM change. Yes, eventually very high prop pitch will lead to lower manifold pressure, but initially, high pitch = high drag = large resistance to the rotation of the engine with rapidly expanding gas and large amounts of fuel = high pressure. The rpm is controlled indirectly by changing the pitch so the changes aren't instant. Because of this, initially you have high pitch And high rpm. I was looking for this and didn't find it which was the first thing that had me confused.
RPM decrease will immediately set your rpm lower, not transition it by simulating a prop pitch change. After that, everything applies normally with the exception of:
2) The 'fine stop' on the prop doesn't exist, at least for the aircraft I tried. When you set high RPM the prop governor will alter the pitch to maintain a high rpm. This means, as airspeed decreases with a fixed power setting, the prop pitch will get more shallow to allow the engine to maintain RPM. The example I illustrated was in a 109. I brought the engine back to idle. At this point, with the RPM set high, the prop will have gone nearly flat in-order to keep the propeller spinning quickly. As the airspeed then comes down with the lack of power, the propeller should eventually hit flat at which point, with no power and no airspeed to keep it spinning, the RPM would begin to drop.
Here you can see that scenario, nearly no airspseed, throttle at idle, sustaining a stall, with the RPM pegged at 25.
On the other end of the spectrum is the 'course stop' which is accurately represented. Put the aircraft in a dive. The governor should run the prop course to try to compensate, but eventually hit near feather and stop. At this point the RPM will slowly increase. This does happen in AH2.
So in conclusion, I apologize to anyone I have confused. Thank you to everyone that contributed. I hope this helps anyone that was confused : )
Cheers,
Rob