While flying in at a constant heading and altitude is just great, pilots often prefer to be on a constant track, that is following a straight line over the ground, even though that means turning the nose back and forth a bit in the air to compensate for changing winds. This can be done by plotting before the flight exactly which bits of the ground you're supposed to be over, then looking diligently out the window throughout the flight, noting and correcting for each deviation as it occurs. That's how you do it on the commercial flight test (using one of two arithmetical methods of correction, not just veering a bit to the left). But this test is not of visual skills. In real life pilots fly long distances in a straight line by following a navigational instrument: a GPS, a VOR or an ADF. This airplane has a GPS, but it isn't an IFR installation, so it's not coupled to the autopilot. This airplane is a proper northern airplane with an ADF, but to my knowledge no one makes an autopilot that can do ADF tracking, because ADF tracking requires semi-magical powers and/or a lot of swearing. Only real pilots are capable of that. So in this airplane the NAV mode is all about the VOR.
I'm sure I've blogged about the VOR, but quick review: a VOR is a station on the ground that creates beams radiating horizontally in all directions. Each beam is called a radial, and the VOR receiver in the airplane is capable of displaying the angular distance of the airplane's position from a selected radial, and whether flying parallel to the radial would take you closer to or further from the station. A pilot's usual tactic is to merge with the radial on an angle, that's called intercepting, and then follow the radial as exactly as possible either towards or away from the station, that's called tracking. Tracking allows you to follow a straight, predetermined line on the ground even if you can't see the ground and the wind is changing.
In autopilot speak, this is the NAV mode. It allows the autopilot to intercept and track a VOR radial just as a pilot would. So to use it, you have to do all the things a pilot has to do before intercepting a radial: tune and identify the station, set the CDI to the desired track, and bug a reasonable intercept heading. Then you activate the HDG function and press the NAV button. That shows on the annunciator panel as NAV/ARM. The airplane flies straight until the airplane approaches the radial and then turns to intercept. At that point the HDG mode switches itself off and the mode switches from NAV/ARM to NAV/CPLD.
The system is totally dependant on the pilot to tune the correct frequency and select the correct radial, but with that done, it tracks pretty well. It even uses internal logic to choose when to start turning, not unlike what an experienced pilot would do, based on the deflection of the CDI and the rate of change. It's not perfect, but maybe they program that in so pilots can feel superior.
It would work the same way if the GPS were in the system. In fact, I don't believe the autopilot itself knows whether its input is the GPS, or a VOR. I think once the pilot selects which navigation input is displayed on the HSI, the autopilot just follows it. The difference between intercepting a GPS track and a VOR radial would be taken care of by the GPS, which is clever enough to give signals anticipating turns.