The PVI gets all its position information from gyroscopes and accelerometers. This is why, in real life, it goes out of sync with reality. In the game, it's currently modelled as a perfect system that never goes out of sync.
As to how the PVI knows the height difference to the target point, I can't say. It seems unlikely that it has an internal memory of the height above sea level of every point on the earth's surface, so if it is indeed accurately pointing at targets with a large difference in altitude when selecting pre-configured points, perhaps the ground crew have a way of specifying a height when they create the mission plans. I don't believe they use the pilot's controls to do it, rather they use a seperate computer and transfer them on a floppy disk.