Yes, I think you're right. They have two options: one is to say that "sex" in the Equality Act refers to biological sex, and therefore a "woman" is a biological adult human female. So when the Equality Act talks about single-sex exceptions, it is referring to exceptions for biological sex only. I am pretty sure this is what the people who drew up the Act intended.
The other option is to say that "sex" in the Equality Act consists of biological sex, plus people who have a gender recognition certificate, but also minus others who have a gender recognition certificate but in the opposite direction. So a "woman" would be most biological women, plus biological men with a GRC, and minus biological women with a GRC. If they decide this, then a trans-identifying man would be counted as a woman for the purposes of eg quotas of women sitting on boards, but a trans-identifying woman would not.
And then we would have the separate issue of single-sex refuges, prisons etc: my understanding is that under the Haldane ruling, in these cases, sex is still defined as referring to biological sex rather than legal sex. (I have never really understood the logic of this, so perhaps someone can enlighten me.)
If the judges go for the second option, then we really are in an almighty muddle.