well they know how to use the movesets as well as the trainers in game... but like the trainers in-game they never switch out unless their pokemon is on low health and they predict a KO (a really obvious one) so they switch out and let another pokemon take the heat...
all in all, the battle tower is just another case of bringing in 3 utility pokemon that can hardly work as a team... since the AI isn't going to incorporate your stratergies into it (or maybe the opponent's teams just suck... i've seen a glaceon with blizzard and ice beam... and this is aparentli in the rank.1 room001 place... stupid)