I'm pretty sure that's how it works. Making the timescale a smaller number definitely makes time pass slower in the game, if that's what you're after.
I think I have mine set to 5 as well, and I like it. I played through a couple of times with it set at 2 but while I liked having a more "normal" feel to the passage of time, it also made me acutely aware of the small size of the game world. I was just getting too much done in the course of one day, lol, because it didn't take any time to get from one place to another. Setting it at 5 seems like a nice compromise.