I understand your point. I would rebut with the argument that if the Watch Officer is just estimating to the best of his ability (and the game is still too accurate), his error will be consistent and the results will be good enough to plot a course and estimate speed.
I'd also make the argument that, over time, an experienced seaman would get fairly good at approximating the distance to a ship. If most ships are of a general size within a class, an experienced officer should be able to tell (by mast count or super-structure layout) what kind of ship it is, and therefore how far away it appears to be.
Again, the idea is to get information to generally plot an intercept course to get you close to the sighted ship.
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