Yes. Well, it doesn't really "see" the ascii art it's producing because it's blind and it's just reading and writing it as if it were text- so the task is much more complex than it seems to us. I do notice a difference between the first attempt (and your sitting penguin) and the small art at the end. If you've used gpt5, it's possible that it decided to engage its full capacity only at that point, and that the previous answers were less thought through.

But yes I do believe these things understand. There is no other way for them to do what they're doing.