I have experience in creating supervised learning networks. (not large language models) I don’t know what tokens are, I assume they are output nodes. In that case I think increasing the output nodes don’t make the Ai a lot more intelligent. You could measure confidence with the output nodes if they are designed accordingly (1 node corresponds to 1 word, confidence can be measured with the output strength). Ai-s are popular because they can overcome unknown circumstances (most of the cases), like when you input a question slightly different way.

I agree with you on that Ai has a problem understanding the meaning of the words. The Ai’s correct answers happened to be correct because the order of the words (output) happened to match with the order of the correct answer’s words. I think “hallucinations” happen when there is no sufficient answers to the given problem, the Ai gives an answer from a few random contexts pieced together in the most likely order. I think you have mostly good understanding on how Ai-s work.