I did begin suspecting that my terminology was incorrect. I suppose RS232 means specifically -12V is a logic one and +12V is a logic zero. If so you are correct, there is no RS232 present. Everything is done on TTL level. However, the USB conversion is just a "magic box", nothing we need to consider. In goes serial communication on TTL level from the micro controller, and out comes serial data through a virtual COM port in the computer. As far as the computer sees it, it is communication through RS232, but of course in reality that never happens.
The point is, for the purpose of this discussion, I think we can pretend that RS232=serial, knowing that in fact everything takes place on the same level.
So the 16U2 is spitting out 5v serial that I want to pass on to the motor controller, except differential. And the motor controller returns a differential signal that I want to translate to 5V serial and send through the 16U2 into what the computer thinks is an RS232 port.
Is this helping or confusing even more?