Well, yes and no, Manual fight allows you to more intelligently pick your targets, skip a turn strategically and use terrain to your benefit, but I don't believe autofight blindly rushes forward. It all happens instantly and we don't see how it actually does its calculations, but I believe autofight does an entire battle simulation that accounts for movement, initiative and terrain. I don't have proof other than my observation of results from thousands of encounters.
For instance, priests and blossom mages can easily take down some light melee enemies because they can stay out of range for multiple turns. When I use autofight with priests against them, it still often results in a near perfect win, thus why I believe it takes initiative and spacing into account. And there are times when a fight that should win turns out badly. Sometimes I've gone in to check the terrain and see a bottleneck that makes sense why the troops I chose for the autofight would lose in the scenario, thus making me believe autofight also takes terrain into account. Sometimes I've gone back to autofight and chosen the "wrong" troops (based on the enemies I'm facing) but this time with the terrain in mind and the fight turns out better. Still not proof, but enough to make me a believer.
But yeah, for the Spire (especially for multi-wave fights) using manual fighting is sometimes the only way to get a good result. I just wish I could control the order of my troops for waves 2 & 3!