So the relationship between engine RPM and wheel RPM is always fixed, only torque split is varied, right? I think that's around where some confusions are coming from.

No, the engine can spin without the wheels spinning. Then MG1 gets spun and charges the battery (or spins freely if the battery is full).

This page has a neat PSD simulation to help grok what happens:

http://eahart.com/prius/psd/

I think it only works from a computer though!