I am trying to learn how RIDE transforms the tags and test cases that are check-marked into the robot commands that actually run the tests. However, after many hours trying to figure this out, I am getting lost in the codebase.
A point in the right direction would be greatly appreciated.
Well, the Tags are not processed by RIDE. Only the fields in Run tab, on the Test Filter, they are passed to the arguments contructor. RIDE collects all the selected test cases and options (including additional you can write in the Arguments field) and creates an Argument File. You can see where that file is, in the firsts lines of TestRunner output.
RIDE has also a Show all Tags dialog, and an Inclusion/Exclusion tags selector.
You can see the Doxygen documentation of RIDE (version 1.5), old one but the structure did not change much, in my site here. Look for RIDE in the top left side.