> It is, essentially, a 68040 emulator with a Mac ROM and System 7.5.3 sitting on top of it.
It sounds like they basically reused the same design that they used to build PowerPC Macs that could run (legacy) Motorola 68k applications.
https://en.wikipedia.org/wiki/Mac_68k_emulator
When you ran a legacy 68k app, the code of the app itself ran under CPU emulation. But they ported some of the system to PowerPC, and when the legacy app called into those particular parts of the system, that part of the code ran natively. Some lucky apps (with the right workload) ran surprisingly fast.
Looking at the MAE architecture diagram, it looks very similar, with some of the Mac system sitting atop the 68k emulator but some of it sitting atop a layer that doesn't go through emulation.