The original locations of vertices of the un-subsurfed mesh are used while moving, rotating, scaling subsurfed mesh that has Adjust cage to modifier result turned on.

Adjust cage to modifier result OFF

Adjust cage to modifier result ON

This is a tiny bug yet a slight annoyance while trying to guess how far the actual vertices are. Not sure if this can be fixed easily somehow. I know edge lengths can be non-uniformly shorter but it is possible to compute the distance between them on the subsurfed mesh I am sure.

Like this:

If this would impact speed on geometry heavy meshes too much I reckon there should be a tick-box in the modifier settings.