What exactly does Storage Sense consider Temporary Files?

This is not a complete answer, because I couldn't find an exact technical documentation on this, but you can get pretty good idea for yourself. Go to Settings > System > Storage, click Temporary Files and wait for Windows to scan your files.

This is what I have in the list:

• Downloads (unchecked, I believe this is controlled separately via ConfigStorageSenseDownloadsCleanupThreshold)
• Windows Update Cleanup
• Windows upgrade log files
• Thumbnails (unchecked)
• Microsoft Defender Antivirus (unchecked)
• Delivery Optimization Files (unchecked)
• Temporary files (I guess this is user's Temp folder)
• Temporary Internet files
• Windows error reports and feedback diagnostics
• DirectX Shader Cache

My guess would be it only deletes files in user's Temp folder. Or, only categories which are checked in the list. I guess this can be investigated further by configuring it and checking this list again after scheduled clean up.

Please note, that Storage Sense runs only on system drive and only after user sign ins