I was curious to see how this worked a few weeks back and put in a relatively low offer on an FCO-LHR leg. I was emailed 48hrs in advance to say my bid hadn't been accepted. Not sure if it was pure coincidence but when I actually got to the gate to board, I found out I had been give an upgrade anyway as the flight was overbooked (at no cost of course).
On the return leg - again purely out of curiosity to see how the system worked, my bid for an upgrade was accepted, but I found that the miles were initially credited as a Z award flight (0 miles) instead of the original Economy booking class. I called the call center and after some confusion from the 1st line support - they were completely unaware of how it was supposed to work - they checked with a supervisor who confirmed this was a known issue and then credited the correct miles instantaneously to my account.