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RE: How the Steem Dollar Peg Works
I feel it has something to do with discrepancies between Internal Market and exchanges. Currently, the Internal Market is trading at SBD 1.97 for 1 Steem. If SBD 1 = USD 1, the exchanges would be trading at US$ 1.97 too. But the exchanges are at US$1.70. By undervaluing the SBD at $0.90, it keeps the USD value of the Internal Market much closer to the exchanges. However, in this case, should the Steem price not rise to meet the Internal Market? And not a fall in the SBD?
But anyhow, that's how it has worked out so far. I hope this stabilizes in the future, and the Steem founders are taking measures to do so.
The internal market is almost entirely irrelevant at this point. Hardly anyone uses it and I question whether it is even needed. (We have it and it works, so I wouldn't suggest getting rid of it, but if we did, the essential functions of Steem would not be affected at all.)
I agree with @modprobe's answer.
The internal market is using a 7-day rolling average price for Steem.
The internal market is based on supply and demand, just as Poloniex or Bittrex. The price will generally track to the price found on external markets.