Seems obvious a liberal voter would vote for their candiate, then probably list other more liberal-leaning candidates as 2nd and 3rd choices, with the conservatives last. And conservative voters would take a similar approach.
So it can come down to not who's the most popular, but who's the least offensive to voters, so it helps promote moderate parties and candidates. The left- and right-wing parties might have to play to the moderate voters to attract their votes, even as 2nd or 3rd choices. So it might bring the major liberal and conservative parties towards the middle a bit? If you're a conservative candidate, and get 45% of the vote, but alienate all the other voters, you could end up losing. So you have to moderate your stance a bit perhaps.
Also perhaps smaller parties might guide their supporters to vote for the 2nd and 3rd choice parties that they have negotiated with. In first past the post, a small party isn't likely to say "hey we're not going to win this seat anyway, so vote Labour, they are the next best thing". But with AV, they can say "give your 2nd place vote to Labour" in return for some favours.
