In PieFed v1.4 it will be possible to label posts as having AI generated content. Labelled posts will get a little badge near their title, similar to how nsfw and nsfl content is labelled. Mods and authors can change this value on a post in the same way they do flair and nsfw, using the little tags button in the bottom right or in 'More options' when editing their post.
Account settings for blocking:
Similar to how NSFW works, each user can control how those posts are listed on the home page, etc. The default is 'Label as AI', which just adds the badge. People averse to AI-generated content might want to change this to 'Hide completely'.
Also similar to NSFW, entire communities can be assigned as 'AI content' and that will auto-tag every post inside as being AI generated. If the community mods have this value unset (e.g. Lemmy communities, which don't have this functionality) then the instance admin can manually override the community's AI Generated setting.
You're right, it's not really an accurate term - but it's the shorthand abbreviation that has caught on.
(Thanks for taking the time to answer!)
But, on the other hand, using a better term in the UI is a step towards (at least some) people starting to use or at least be aware of other terms; "catching on" is a result of people and UIs using it! ๐
And something less technical, like "Generative technology" would also be clear ๐