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https://zwiftinsider.com/using-the-trainer-difficulty-setting-in-zwift/
"This setting is really a “gradient scale.” Zwift is constantly sending current gradient numbers to your smart trainer, and the trainer adjusts its resistance to match the gradient you are riding. The Trainer Difficulty setting scales the gradients sent to your trainer.
Trainer Difficulty is set to 50% by default, which is why Zwift says it “treats the gradient as half of the true grade.” So when you hit a 10% climb in Zwift, your trainer is only giving you the resistance of a 5% climb."
Zwift say different and the experiment bears it out: you need to put same watts in to move the same distance. So it’s definitely just gearing.