It only shows the temperature of the exact component stack, but it's not stated whether it's the hottest component or the average temperature of all VRM and all VRAM chips.
Let's say we have one MOSFET not properly cooled and all other cooled properly. Will the program report the temperature of the hottest mosfet or it will sum the temperatures of all mosfets and then divide them by their count to get the averages?
Temperature monitoring is managed by the PWM circuit and exact capabilities depend on particular VRM model and board design.
Most PWMs should monitor the the internal PWM chip temperature, some can also monitor the all power stages and report the maximum of these values.
On GPUs this can be more difficult to tell when we cannot directly access the PWM and rely on the GPU firmware that translates these values. In such case it would be best to check with the GPU vendor.