I don’t know the exact details of MeteoBlue’s forecast model, but almost forecast models encode their data in a standardized format known as GRIB.
A worldwide model will have a standard latitude/longitude grid with a specific spacing between grid points. The NEMS model that MeteoBlue is using for MSFS has a 30 kilometer spacing between grid points. Some high-resolution regional models may have a much closer grid spacing - sometimes as little as 2 kilometers between adjacent points. That would be impractical for a model designed for worldwide coverage, as the resulting data file would be enormous.
For each grid point, there will be standardized vertical levels. Typically 2 and 10 meters above the ground, and then standard pressure levels which (indirectly) correspond to altitudes. A typical set of pressure levels might be 1000, 850, 700, 500, 300, 250 and 150 millibars, which correspond to altitudes between approximately 1000 feet and 39,000 feet MSL. Some models may have many more discrete pressure levels than those.
For each vertical level, there would be data such as temperature, dew point, height of the pressure surface above sea level, (which varies from day to day and hour to hour), wind speed and direction, relative humidity etc.
Most models will contain other data types more of use to meterorologists, such as absolute and relative vorticity, vertical motion, potential temperature, equivalent potential temperature etc. These latter data types are not directly used by pilots, but they can predict whether clouds or precipitation will exist at a specific location or altitude, and what type of clouds or precipitation might be present.
Based on the information contained in MeteoBlue’s partnership video, they apparently subdivide the model grid into smaller sub units both horizontally and vertically, and interpolate values in both directions. This would NOT be the same as having a model with a higher number of grid points to start with. What MeteoBlue is probably doing is using an averaging algorithm to create values at intervals between their standard grid points horizontally, and between discrete pressure levels vertically.
As far as how the model data is actually translated into the in-sim weather is something I could only speculate on, and something which only MB and Asobo would know for sure.
The forecast model is run twice each day, at 0000Z and 1200Z, and each model run will contain values for each grid point for each discrete hour from the model start time, out to 24 hours.
The model data is strictly a prediction of what the weather “might” be.
IF the MeteoBlue weather data is imported into Microsoft’s Azure servers in a timely fashion, then for any given location and time, you should get the predicted weather for that specific location and time. Many of us have reason to think that process does not always work correctly.
METAR data is not a prediction. It is based on real-time observations made either by human observers or by automated weather equipment like AWOS. METARS are only taken at airports, and not all airports (especially smaller ones) report weather.
A METAR report will normally include time of the observation, wind speed and direction, cloud layers (height above ground and coverage), temperature and dew point, visibility and barometric pressure (corrected to sea level), and any precipitation that may be occurring.
METARS are normally taken once per hour, though new METARS may be generated more often if conditions are rapidly changing. The kinds of changes that would be cause to generate an updated METAR would include a significant shift in wind direction or speed, rapid temperature change, significant change in visibility, the beginning or ending of precipitation, thunderstorms etc.
Based on the recent Q&A, Asobo confirmed that they are using METAR data for airport surface weather. They did directly state that they are using the METAR wind speed and direction, but did not specifically mention whether they are also using METAR temperature or pressure. Also, they did not specify how often the airport METAR data is updated. If the actual airport weather is relatively unchanged, then there would only be new METAR data available once per hour at best.
They did not specify how the surface data is blended with the MB model. I would assume there would be some kind of smoothing algorithm in play to gradually transition the actual surface winds to the predicted winds above the surface. If there is a large disparity between actual and predicted winds, the transition might be rather abrupt.
I would bet anything that the clouds and precipitation (if any) come exclusively from the MeteoBlue model, and not from METAR cloud reports. It would be much too difficult to blend the two if there was a significant difference between the prediction and the actual observation.
Everything I have said here is speculation - I have no inside information on how Live Weather is actually implemented in the game.