FullSimplify in Mathematica struggles with certain expressions involving absolute values and assumptions, particularly when simplifying Abs[(x*y)]^2 under the condition x > 0 && y > 0, which returns Abs[x*y]^2 instead of a simplified form. In contrast, FullSimplify successfully simplifies Abs[(x/y)]^2 to x^2/y^2 under the same conditions. Users noted that Mathematica may treat variables as complex unless explicitly stated otherwise, leading to unexpected results. A suggested workaround involves using PiecewiseExpand to handle such cases more effectively. Understanding how Mathematica interprets assumptions is crucial for achieving the desired simplifications.