Two questions arise immediately: Why South, and how accurate. Well, South simply was the favorite direction to Chinese culture as North is to us nowadays. Regarding accuracy we should be realistic: Without regular adjustments (astronomy was another field of Chinese excellence, and the magnetic compass was known as well) every mechanism build by hand out of wood would err sooner or later. But if drawn down winding main street on ceremonial occasions it will have served its purpose as the Emperor's miracle machine.
While the magnetic compass quickly gained world-wide use due to its practical worth (first mentioned in Europe 1188), the mechanical compass - and nothing else a south pointing chariot represents - flourished only in the chinese culture area. Whether they had any practical use at all, lies in the dark of history. But several legends tell us of travelers who found their way over long distances or through low visibility environments by means of this machines.
Nonetheless the concept of compensating deviations from a straight line of travel by complex gearing deserves our admiration.
It should be mentioned that modern navigation systems (GPS et al) use pure mechanics again to bridge the gap between two satellite sightings. The difference lies in the method used for memory: While the Chinese relied on friction to keep direction (the pointer simply didn't (or shouldn't) move as long as no force was present), contemporary designs use high speed gyros and their inertia for storage.
The old device still lives in the symbols of moden languages: The Japanese
shinan, the Korean chinam and the Chinese chih-nan
- meaning "point south" literally - are idioms used to express "to teach,
guide, instruct".
It was said that in the battle between the Yellow Emperor and Ci-you at Zhuolu, Ci-you used magic powers to produce a great fog, which caused the Yellow Emperor's army to lose their way. Because of this, the Yellow Emperor invented the south-pointing chariot to guide his troops, which helped him emerge victorious over Ci-you.
The Battle of Zhuolu was an important event in ancient history, a key step that helped the Yellow Emperor to realize his ambition. As to whether or not he invented the south-pointing chariot, there is no evidence he invented it, since archaeologists are yet to provide such evidence. However, "Si-nan" (a type of compass) was invented during the Warring States Period. South-pointing chariots were found in Han and Wei Dynasties and models were made for experiment.