It's standard in most interstellar sci-fi that the one impossible thing it should allow is FTL travel, since that is just plain easier to write around, I'm sure you would agree. That does not mean that it has to ignore the laws of physics in all other areas.
It doesn't measure planets down to the smallest of forests, and habitability is basically abstracted. However, a pure-oxygen environment is not as inhabitable as a good mixture, which affects growth rate of colonists. Furthermore, if you can make a world as close to your own home planet as possible (by raising or lowering the temperature, introducing the breathable gas, offsetting that gas enough with a neutral gas like nitrogen, etc.), you don't need to live in habitats, simply named "infrastructure" -- and if your colony outgrows its infrastructure, the death rate goes up incredibly. So you could possibly say that it's part of forest fires, abstracted.
Habitability modifier basically means the amount of infrastructure you need per million colonists. On a X1.00 world, for instance, you need 100 Infrastructure per million. For something like Venus, I believe it's X8.00 or so, meaning you need 800 Infrastructure per million, as they need to be built thicker, have far more atmospheric control, protect from poisonous gas, etc. There's ways to modify that, and that's what terraforming is all about -- messing with the atmosphere
Also, space travel is not yet Newtonian; the programmer is working on that, but it takes a LOT of work to get the AI to work around Newtonian physics. Right now, there is no Delta-V or inertia construct.
This is very much a work in progress, like the Kerbal Space Program and Dwarf Fortress (which the creator intends to make into an overall civilization simulator)
