There does seem to be a lot of confusion over how Linux auto-tuning for TCP works, so here are so links to documents that outline in good details exactly how this does work. After reading all of these you should be up to speed on this topic.
http://www.csm.ornl.gov/~dunigan/netperf/auto.html
http://public.lanl.gov/radiant/pubs/hptcp/hpdc02-drs.pdf
http://www.psc.edu/networking/projects/tcptune/#Linux
http://www.broadnets.org/2004/workshop-papers/Pathnets/03_TCPHighSpeedWAN-SylvianRavot.pdf
http://fasterdata.es.net/TCP-tuning//linux.html
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