Fedora has has it on by default for about 4 years now and its perfectly usable. I use it every day.
The problem is much more serious than you are explaining. While using X, on my main monitor, UI and text becomes so small I can not even read it or click the icons. I'm not talking about the window size, but the UI and text size. With wayland the app can switch from 200% scale to 100% scale as it crosses the window border. On X you must pick either 100% or 200% and stick with it on all monitors.
Can Wayland handle this? If not, what's it really solving?
Yes.
I really am curious what features you think wayland is lacking. I've been using wayland for years, both using Sway and Gnome, and the thing I've missed the most is xdotool, and perhaps there will be a standardization effort to replicate its functionality securely, but for now it's an understandable omission.
Maybe it's not fair to say that X is broken for mixed-DPI configurations, since I have managed to get it working with X, but it was quite unreliable, whereas on wayland it just works, save for some incompatible electron apps.