The only thing I found is that the hit targets for the pen colors and clear screen button are perhaps a little small to tap with a pencil; I ended up drawing on the buttons accidentally a few times.
Switching colors with the keyboard shortcuts (1/2/3) and clearing with the c key works fine alongside the pencil, though.
I also instinctively tried to tap two fingers on the iPad as an “undo stroke” command, as that's how other iPad drawing apps often work, but that obviously does nothing in this case at the moment.
It would be useful to have an “undo stroke” shortcut in the app so users could map to the shortcut from a gesture (not sure Sidebar supports that but I think AstroPad does: https://astropad.com/magic-gestures/ ).
I just gave it a try on my iPad 7th gen and my MacBook (running macOS Catalina) and it worked great.
One thing to keep in mind though, when I connected my iPad to my mac via sidecar, many of the menu bar apps got hidden due to lack of space on my menu bar. So, I had to start the "Annotate Screen" via keyboard shortcut.
edit: I tried it w/ Astropad.... works great