Quoting Frogboy, reply 13I am penalizing the dumber AIs by giving them less stuff.
This is a significant change from stardocks age old philosophy of a non 'cheating' ai except at extreme difficulties.
I think he means more in terms of multipliers on things like economy, ship strength, etc. On "Moron", the AI will be fully functional but only get maybe 10% of the benefits from such things. A planet under their control may only make a quarter as much in taxes as one of yours, and a stock market will only improve that 2.5% instead of 25%. Even the smartest AI won't do too well if they can't afford to build anything.
At the other end, "Suicidal" AIs might get 10x the standard benefits. A single stock market improves that planet's economy by 250%, not 25%, so the AI can afford to spam more ships, and those ships will be much better because the AI can devote huge sums of money to research, and that money converts to techs faster than it does for you (their lab buildings produce 40 tech points; the same building for you makes 4).
That's not "cheating" the same way having the AI just magically materialize ships at the edge of the map might be (which is how some games give their highest difficulty a bonus). The AI is still following the same mechanics as the player, so the player can use the same type of tactics against the AI as would work against a human opponent. The AI can just afford to do everything bigger and faster than you, but it can still be outplayed if the human is good enough.
Note: numbers pulled out of nowhere for illustration purposes.