Does anyone know why the saddle height is calculated based on a fixed formula 0.883 x C (C = inseam length) in the cyclist dimension tab? This seems to ignore the fact that a longer crank should result in a reduced saddle height.
The first thing to note about the Fit Advisor is that it can be customized to accommodate any fitting philosophy. There is information about customizing the Fit Adviser in BikeCAD Pro here. There is also a guide to deriving your own formula for the Fit Advisor here.
Meanwhile, to address your specific question... You are correct that as the cranks get longer, a rider will have to extend his leg further and further to reach the bottom of the pedal stroke. The other side of the coin is that same rider will have less and less clearance for their leg to pass over the top of the pedal stroke. The key is to increase the crank length and the saddle height in proportion with increases in inseam length. Imagine we have a benchmark rider and bicycle. We know the rider's inseam as well as the saddle height and crank length on their bicycle. They are comfortable with their fit and we'd like to replicate that fit on a taller rider. If you increase the saddle height and the crank length by an amount that is proportional to the increase in the second rider's inseam length, then you can theoretically replicate the fit of the first rider in the second rider. This idea is illustrated below. Note that in order to be dramatic and to make the math as simple as possible, the rider on the right is 5' tall. The rider on the left is 7'6" (exactly 1.5 times the height of the smaller rider). All dimensions on the left are 1.5 times as large as the dimensions on the right.
This is the basic idea behind the Fit Advisor. However, remember the Fit Advisor is customizable. If you disagree with any of the recommended output. Tweak the formula, or create your own.