Yeah, we know.

The difficulty level is supposed to be determined by the abilities and economics sliders-not for customizing your AI intelligence so much as for customizing your AI variety, for instance if you'd prefer to play with a supernaturally smart AI that makes no money, etc.  The intelligence is more so dictated by a small range within the set of abilities + economy, as you've noticed.  But as the two are tied together, you can't have a Suicidal AI with full abilities and no economy, for instance; it just isn't rated as such.

The higher difficulty levels have been given artificial bonuses simply so they CAN compete with the human player.  Wait until you hit Maso/Obscene/Suicidal; then they get even more extra income, extra production/research, not to mention a healthy boost to miniaturization and sensors.  Numbers from memory are +100%/200%/300% production/research and maybe econ as well (multipliers, that is, not ability bonuses-so 2x/3x/4x normal), with ~20 miniaturization and 1 or 2 sensors per each of those 3 levels as well.

It's not so much that the GC2 AI is bad...aside from the difficulties it has dealing with the changes made in TA, it's actually quite good.  It's more so that there was only so much that Brad and the team were able to fit into it-and that GC2 is a few years old now.  Not to diminish Brad's efforts, but even he admits elsewhere in these forums (or was it in an interview he gave somewhere) that doing the AI in GC2 was a learning experience for him, kind of like on-the-job training.

The point being, because the AI is not perfect, and because it is, more to the point, not human, it can't come up with tricks and loopholes on its own, and at a certain level of play, when the human player starts using them, the AI needs something more to be able to compete.

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Over time, you'll get used to it...I stayed on Tough until I was able to outcolonize a given AI 9-to-1 (that's outcolonizing all of them combined, essentially), and then moved on up-because it wasn't a challenge anymore.

At this point I almost wish the Suicidal AI was a tougher nut to crack.    But it can still throw me curveballs now and then.

"Tough" -is- the intelligent AI.  Especially considering how many people have difficulty even on Normal when they start playing, I'd say Tough fits the bill rather well.  The only issue is that sooner or later, the human player, due largely to our ability to think outside the box, comes up with things the AI can't even recognize that it can't handle.

As I understand it, the option you're referring to allows the AI to use a different thread/core for its processes, if available, which can allow it to make more involved decisions, as well as doing so faster, while running the rest of GC2 on the primary thread/core.  It doesn't actually make it smarter; just more clear-headed.