What ACTUALLY happens is that when you build flat penetration, the graph moves towards the right along the x axis. That's just it however. It's not that the graph is taller, it's that it's shifted.
Not really. Values change when you shift a graph. If you have a negative slope and shift it to the right, the values along the left increase. 'Get taller,' if we want to use that terminology.
This is important because of slopes. Flat Penetration in the form of Sorc Shoes falls off just as fast as without any items at all. On the other hand, if you focused on raising your base multipliers (AD, AP, CDR, etc.), you stretch the graph to be taller than it should be, and this effect lasts even as you climb in armor.
What this means is that, in relation to raw stat items like Deathcap, Flat Penetration falls off late.
I've read this a dozen times and showed it to my more math-inclined friends, and none of us have any idea what you're talking about. Could you maybe rephrase or clarify your reasoning?
Relatively, however, its effects drop off faster against higher forms of armor.
To an extent, sure. It scales with the enemy's health. It will be less effective against a tank that built Frozen Heart and Thonrmail than one that built Randuin's and Warmog's. That's not because the enemy has higher armor values, tho - it's because they have lower health values.
Relatively, AP, AD and CDR also drop off faster against higher forms of armor/mr/hp. That's just how defensive statistics work - it's why people with low stats are called squishy and people with high stats are called tanks. Literally every damage multiplier out there is relatively less effective as you add armor/mr. The only thing special about flat penetration is that it scales exclusively with health, rather than with a combination of health and resistances. It's basically identical to %HP damage in that regard, and who thinks that falls off late game?