Yes, they have just integrated the controller part of the LDO but left the pass transistor as an external component.
The simulation you tried is not correct as you have just fed 1.2V to the PMOS's gate, which will turn it fully on in this case and so will output 3.3V. The chip integrates a controller with feedback indeed.
That has the benefit of only requiring an external PMOS rather than a full-blown LDO (cheaper) while not having to integrate a high-dissipation power transistor inside the chip itself, which would be unconvenient as it has to dissipate as much as 1/2W, which is a lot.
Note that you can absolutely use a separate external LDO instead if you so prefer (in particular, using a switching converter instead would save significant power), as the DS states.
LDO Controller
LDO_O
AO
On-chip 1.2V LDO controller output.
Output
This pin drives the input gate of a P-channel MOSFET to gen-
erate 1.2V for the chip’s core voltages.
Note:
If the system provides 1.2V, this pin is not used and
can be left unconnected.