ASU favored by 4.5 doesn't mean Vegas expects them to win by 4-5 points, right? I don't really understand how betting works. In this case, is it set at that because most fans will bet on ASU to win by (much) more than 4.5?
It sorta does... implicitly. Typically, lines are set such that they are where the public will split bets 50/50 on the line.
Because long term teams are going to cover/fail to cover 50% of the time that means that whatever the line ends up at is the point where an outcome on either side of the line is equally probable... and therefor, while a team favored by 7 points doesn't explicitly mean that the expected final score, if you looked at a standard distribution a 7 point victory would fall right in the middle of the most probable results.
These probabilities of victory are typically reflected in the moneyline odds for who will be the winner outright. Very rarely do the moneylines depart from the implicit moneyline as can be determined via point spread. And over time... moneylines are as accurate as you can possibly get at putting odds on the winner. As such, whatever the Vegas line is set (specifically the moneyline if available) gives you a very accurate projection of the expected result.
What should trouble all ND fans is that the line has moved away sharply from ND for every single game this season and Notre Dame has failed to cover a single time (unless you look at some of the books where the MSU line went all the way down from -7 to -3.5 at the last second). I can't remember the last time ND covered... maybe Wake Forest last year? I know we covered against Oklahoma in 2012. So Vegas has been a bit generous towards ND... the public has corrected... and we've still failed to cover. Alternatively, another theory would be that Tommy's turnovers/Chuck Martin's play calling/the myriad of other things going inexplicably crappy is all point shaving and that someone is on the take with the mob/a betting syndicate and that is driving the money + bad results. That's the tinfoil hat level. But weirder things have happened.