It seems now to be reporting the last answer or edit on an answer, but not comments. If there are comments made after the last answer or edit to an answer was made, they don't seem to be reported as activity. For an example, check out the last modified date for this question.

@MarkBaker that's [status-bydesign], comments aren't supposed to update the last activity date.

@ArtOfCode Well that is unfortunate. The only use of last activity date that I can think of is to see if there is anything new to look at since you last visited. It's one more thing that makes it hard to keep up with what (if anything) is happening here. Anyone who visits the site regularly basically wants to know one thing: has anything changed since the last time I was here. That is actually a pretty difficult question to answer here. And that makes the site less easy to use.