Well, I've been testing the restoration loop, and it's indeed amazingly powerful.

I decided to test one of the crazier potions, which allowed me to improve armor by hundreds of points, landing my overall AR in the 2600s. I thought I'd go test the results, to see if indeed the armor cap had been broken, and I still took damage, albeit much less, than I would without any uber-smithing at all.

That's good news, as it does indicate that I cannot accidentally make armor that will render me invincible, as I don't want to become overpowered. My question is--why does it still display the crazy high AR? Does the armor cap still figure in, due to how the game is coded to work, and the crazy high AR is just because that's what my uber potion would do if the armor cap didn't exist or... what?

As a side question, I encountered an Elder Dragon, but the thing flew away after a short skirmish. Does my AR have any bearing on enemies fleeing...?

No idea why rating shows, but it will still offer the same protection of 567.

Also, to my knowledge, AR has no effect on enemies fleeing.

It's just an integer number following the same rules applied to all ints and floats used by the game engine. You can keep pushing that number til it reaches over flow which is something like -2 billion.