I don’t know how you would track the location of the ship or whatever
I have the impression that they don’t track it, I don’t think it matters whether you put your finger next to the ship or not. Probably the controls are tweaked specifically for that game so that the relative movement of the finger in the screen will produce the right output of the stick that would make the ship move the same distance your finger moved.
Most likely this would have to be tweaked per-game, and it would probably stop working that well if the speed of the ship changed during the game (unless they are messing with the ram).
[EDIT: It does seem to be dealing with the RAM so perhaps it’s actually getting the position of the ship]
You could rely on just relative positions and use the entire screen as a big analog stick, but that wouldn’t be a big improvement over the current behavior.
Honestly, I do think that something like this would be an improvement in general. Not just for this kind of shooters. The best touch screen joysticks are those that change position relative to where you start the movement, re-centering themselves around your thumb when you place it.
This allows you to stop having to care about where do you place your thumb to initiate the movement and just control the movement by moving it, which is much more precise than having to keep muscle memory about the position of the dpad or stick.
That said, I can understand this is also a significant effort to implement, even if less so than the follow-the-finger controls shown in these videos.