For clarity’s sake I’m oversimplifying here:
AltHolduses a 2 level cascading of PID control loops:- angle rate - the inner most control loop
- angle - the second control loop, wraps around the angle rate control loop
Loiteradds a 3rd cascading outer PID control loop on top for position. And the inner angle and angle rate loops are still used.
Diagrams are on the ArduCopter’s System Identification documentation page
So yes, Section8 does apply to Loiter and Auto and all other modes. The inner loops need to be tuned (fast-transient response, good noise rejection, low overshoot, stable, etc) for the outer loop to even have a chance of getting tuned and do its work.
A good transient response depends on the size of your vehicle. A 300g vehicle will potentially be more agile than a 300Kg one. There is no one value fits all. But yes, the smaller the better.
To improve the loiter response, you first need to make sure the innermost angle rate control loop is performing correctly, after that the second level angle control loop is doing OK. And only after that you tune the outermost position control loop.
This process is explained in Section 11, and we wrote an entire Blog post on the topic and also wrote some of ArduPilot’s system identification documentation there are depictions of the three control loops explained above. We also contributed a simulink model of ArduCopter’s inner control loops.
All of that information is on Section 11.