The Target Acquisition System Modification 1 has nothing to do with spotting anything at closer ranges, it doesnt decrease enemy ships concealment value at all. What it does is it lets you spot or "see" enemy ships farther away than you normally could.
In example if a destroyer has a spotting range of 15km and a enemy battleship has a surface detectability range of 16.7km the destroyer could not "see" the enemy battleship even if it was lit up by someone else on his team. Now if he would get the Target Acquisition System Modification 1 his spotting range would increase to 18km, which would let him see the enemy battleship.
Is this clearly enough explained for everyone?