So... I've been through this, read the T&Cs, and this is what I've found:
You will only get the email if you booked your flight direct with Etihad.
The emails are sent 14 days prior to the flight.
You are notified if you're successful 48 hours before departure.
Winning bids do get access to the F lounge at AUH.
Winning bids do accrue bonus miles, but I think this is less than you would get if you booked a revenue F ticket.
Extra luggage is only valid for the F legs of your ticket, so if you're just transiting in AUH the extra allowance is as good as useless if you don't/can't upgrade your entire journey.
The "bid" amounts are set by Etihad, starting as £385 per sector, and increasing to £750 per sector. If you move the slider to £750 you stand " A good chance" of being successful. If you stick at £385 it is "Very unlikely your upgrade will be successful".