Interesting question katdad! I'd tend to agree with you that a cat is not necessarily - or naturally - going to make the association between a visible human head above the covers and the invisible rest of human under the covers. You stick your arm out, and Callie stops pouncing. She recognizes your arm. But I'd think that before she understands that it's your arm moving under the covers, she'd have to understand that your arm is still your arm whether or not it's visible. Does she wonder where your arm is when it's not sticking out of the bed? Probably not. She doesn't need to wonder about it. So it would be a fairly complex learning process for a cat to understand that it's your arm making the movement.
How quickly a cat learns such things is undoubtedly one way to measure kitty IQ. None of my kitties have been particularly bright, my first one in particular. That judgment might not be totally fair though, because I got her as 4-ish month old kitten, so I saw her going through the same learning process that you're seeing in Callie, whereas my other two I adopted as adults.
However, I will also put out there that even the kitties who don't seem very bright to us are probably smarter than we think. If they don't do the things that very smart kitties do, is it because they're inherently not capable, or is it because they're lazy and knowing those things isn't important to their well-being? In other words, if they had to learn that the thing moving under the covers was the arm of the human who feeds them, and that if they kept pouncing on that thing, they wouldn't get fed, I think most cats would get pretty smart pretty fast.
I always thought my Celia was slow, and yet, when she started to need frequent vet visits a couple of years ago, it took her all of two instances of me closing all the bedroom doors to understand that this was the prelude to the carrier coming out and her being put in it and that she had best hide under the loveseat immediately. She learned in no time to associate my leaving without locking the door and then returning in a minute with trips to the vet. So when it matters to her well-being, she is suddenly a feline Einstein.
Callie is still young, so everything is still new and fascinating. But she might never stop liking those things moving under the covers. Celia still likes to pounce on my feet occasionally, and she's 14.5 years old. I used to keep a wand toy by the bed with me.