It's an estimate only, and based on the average MPG which your computer also calculates. And yes, it's off, the good news is that it errs to the side of caution, i.e. it shows less range than most vehicles actually have. Mine almost always shows 410 or 415 miles when I fill the tank.
If you are planning a long trip and need to know your range, it's better to hand calculate it. Another option would be to get a scangauge II or an ultra-gauge, they are trip computers like the one in the dashboard but the difference is that you can calibrate them to read accurately. The Ultra-gauge is cheaper (I have one on my DD Mazda) and the display on the UG is better, the Scangauge is more expensive but the nice thing about it is that you can program it to show your transmission temp, which is nice to know, especially if you are towing. I have the SGII on my T4R.