When Windows says "Fully Charged", does it stop charging the battery and start using pure AC power? Or does it keep using battery but the AC keeps charging it? Or does it do something else?
It depends on the design of the laptop and the power demands. But basically, the battery will remain fully charged under all normal usage conditions. Whatever power the laptop needs will be drawn from the AC power source.
It goes off of AC power, you'll notice on a laptop if you pull the battery while it's charging the computer will stay powered on without any issues.