I think there is a feedback loop involved. Someone wanting to sell their home will likely look at the Zestimate to help them set an asking price. And then tack on a few thousand for negotiating room.

Zillow monitors the offer amounts by potential buyers, and if any are above the current Zestimate, that signals the algorithm to raise the home's value, even if the sale hasn't closed yet. This then becomes a "comp" for the neighborhood (since other realtors will check their site) and influences nearby sales.