For the market of the auction, the selling price is the actual market value. Likewise, it's typically not too far off the value of the item in the wider market, assuming you are comparing it to a similar item in similar condition. The problem is that for most items purchased at auction, there's no similar item, readily available, to compare it to.
I've won multiple items at machine-shop auctions for a small fraction of their "new" price. The problem with the comparison is that e.g., the Starrett dial test indicator that I got for $10, and the new one that retails for around $200 are hard to compare because there's no liquid market for 30-year-old measuring equipment. While it's adequate for my hobby machinist use, it wouldn't be acceptable in a precision shop since it has no calibration history.
If you find an item where you can reasonably compare apples to apples, e.g., a car, you see that the final price of a car at auction is usually pretty close to the price of the same make/model being sold on the open used market. The slightly lower price of the auction car reflects the risk of the repairs that might be needed.
