Great job of explaining this Andy. The way this is normally useful to guitar players is just that, a sequence of shapes that can be moved up and down the neck, just like our two common barre chord shapes. I generally think of it a bit differently, as really 3 patterns, by combining the C and D shapes, and the G and A shapes. This is why in my Lead Secrets lesson I talk about 3 important shapes. When I get to a continuation of it I will elaborate a bit more on the connections.The CAGED system is the logical progression of the layout of the guitar neck in standard tuning. It allows you to connect up chords in a fairly simple way, builds arpeggios on it, and build lead scale patterns on it as well. It's got it's limitations, but it covers quite a bit of ground and puts it together in a way that is actually pretty simple. The trick to it is learning the patterns well enough to use them effectively. But then that holds true for any system.
I personally think it's a perfect starter to learning the guitar and how it's all inter-related. Once you have it down, you are then really ready to dive head first into the ocean of theory
Neil