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I am a bit confused by pressure altitude, in my ground school we were taught and equation ((29.92 - altimeter setting)*1000)+ altitude) is equal to something.

I believe that something to be pressure altitude. What I don't know is how some of the numbers are acquired. Is the altimeter setting just an arbitrary number that you plug in or is it the number that you get from ATIS. Then for the addition of altitude, is that the true altitude or the altitude measurement fed form the "arbitrary" pressure given to the altimeter?

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You are correct, pressure altitude ≈ reported altitude + 1000 * (29.92 - altimeter setting) in feet and inHg.

The altimeter setting is reported by the weather station. It is letting you know that in the vicinity of the weather station how the air is relative to a standard atmosphere (which is what all of your instruments are calibrated with respect to).

For instance, if you are on the ground at 1000 feet elevation, and the altimeter is 30.02, the pressure altitude will be approximately 1000 - 100 = 900 ft.

If you are flying at a true altitude 2000 ft (1000 ft above that same airport) and the altimeter is 30.02, your pressure altitude while flying is approximately 1900 ft.

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