They do, but it could be better. It's also track/car dependent, on some its okayish, on others not so much. But in this last update it's much better than before.
I've seen AI Vs AI struggle with blue flag behaviour at Daytona RC, the faster cars get alongside but start braking and take awhile to actually go past, as if they're far too hesitant. If I get time I'll make a proper report on it if it's an unknown issue.
Yeah, the ai should be a lot more proactive in giving way, especially during practice and qualifying, when they're on in/out laps to/from the pits.
