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How does this work in practice, since I can imagine a situation where using the local air pressure value, altitude is measured at 18k feet - then, switching to the standard setting of 29.92, it turns out that this converts to an altitude of 17.5k feet - so, now the system switches back to using the local air pressure for calculations - and so on... Is there some form of hysteresis or rounding used, or would this never happen in practice?

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Interesting observation! You could easily imagine an automated system going into some kind of oscillation if it didn't handle this properly.

Here is why it doesn't happen: whether you are climbing, descending, or flying level, you always have a specific target altitude or flight level. This target determines the setting you use, and you know which kind it is.

For example, you may be flying level at an altitude of 8000 feet and Air Traffic Control instructs you to "climb and maintain flight level 240" (roughly 24,000 feet).

You start a gentle climb and then change your altimeter to 29.92 because you're going up to the flight levels. You don't need to fiddle with the altimeter when you cross the transition altitude, because the target altitude/flight level is the only one that counts.

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