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Does it work both ways whatever option you choose?
Single player vs AI.
This question / problem has been solved by Bq2zfimage
Necroposting, since the OP has most likely long moved on, but in case anybody else has the same question:

I don't know for sure, but, unless the AI units are meant by the scenario to assault you, it seems the AI is triggered by distance, it won't do anything if you don't come closer than a given distance, so you can assume there is some kind of "fog of war" going on...

At least that's how it looks after having shelled the AI from afar (with long range artillery and titans) during many turns without it reacting. The prerequisite being to be able to spot the enemy from afar, and most "scout" units have a spotting range of 4. I edited the (otherwise useless) flyers to a spotting range of 5 (and BTW also fixed their movement to "flying" instead of "hover"), and thus are now able to see the enemy long before it sees me. This makes the game much easier.
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Bq2zf: Necroposting, since the OP has most likely long moved on, but in case anybody else has the same question:

I don't know for sure, but, unless the AI units are meant by the scenario to assault you, it seems the AI is triggered by distance, it won't do anything if you don't come closer than a given distance, so you can assume there is some kind of "fog of war" going on...

At least that's how it looks after having shelled the AI from afar (with long range artillery and titans) during many turns without it reacting. The prerequisite being to be able to spot the enemy from afar, and most "scout" units have a spotting range of 4. I edited the (otherwise useless) flyers to a spotting range of 5 (and BTW also fixed their movement to "flying" instead of "hover"), and thus are now able to see the enemy long before it sees me. This makes the game much easier.
Thanks for your reply.

Funnily enough only recently I started playing this game, for my Twitch streams. I am well into ACT III.

The game mechanics do look this way regarding fog of war.

Just want to add, the enemy will shoot back if you shoot it from outside of their view range, if they have a weapon that can shoot as far. I am guessing this too was done for game balancing reasons.