The joystick functions exactly the same as the 4-way in any other game, except that it is turned 45 degrees.
It has the same diamond shaped restrictor as the others.
In use it feels like a square, as you run the stick through it's range of motion, because it's turned.
You can achieve the same feel with a square restricted 8-way.
You just need to set Up=Up AND Right, Left=Up AND Left, etc...
That keeps the stick from registering movement until you are all the way into the diagonal.