What the AH does is represent the true value of any given item.
The AH shows those items that have not yet been bought.
Your sentence is a base assumption, that everyone has to follow entering a new market. But there is a huge chance for the following to occur:
- for a period of time, the supply and demand side changes a lot, so the apparent value changes
- you just enter the market of an item with low supply; you're going to find monopolized prices but no buyers at all, until the price drops significantly (and I mean significantly, even 50-90%).
"Sell orders" represent the expected selling price of the seller, incorporating the value of the item, and possibly some profit. (Most of us try to find the markets with the highest profit; we know the value of the item differs from the actual selling price either direction.)
"Buy orders" represent the buying price of the buyer, incorporating the value of the item and possibly some tip.
I believe, neither of these is The Value and neither of these is better than the other.
I agree that people tend to buy items that are around the value or below, and on a proper market it is going to work. Free market is not a proper market however, and WoW is also far from it. (Maybe I'm just misinterpreting the meaning of "free", though.)