I'm not an expert, but my assumption is that it knows enough about linux and how it should behave and it knows all of the functions of all of the commands and that's how it knows how to respond correctly. Linux isn't actually running, it just knows how linux would behave if given certain commands, and even knows that if you create a file and put text into it, that linux would save it and would be able to recall the text later if needed, so it emulates that behavior.