I think I understand the matrix exponential a little bit better now. The scary infinite sum used in the definition
$$e^A = I + A + \frac{A^2}{2!} + \frac{A^3}{3!} + ...$$
actually converges (always?) to a single neat matrix of the same size.
For instance, it can be calculated explicitly by summing the above infinite sum that
$$e^{\begin{bmatrix} 1 & 2 \\ 0 & -1 \end{bmatrix}} = \begin{bmatrix} e & \frac{e^2-1}{e} \\ 0 & \frac{1}{e} \end{bmatrix}$$
so $e^A|b\rangle$ is in fact just
$$e^{\begin{bmatrix} 1 & 2 \\ 0 & -1 \end{bmatrix}}|b\rangle = \begin{bmatrix} e & \frac{e^2-1}{e} \\ 0 & \frac{1}{e} \end{bmatrix} |b\rangle$$
The transition to complex $i$ introduces some possibilities for interference/cancelation of terms, since:
$$e^{iA} = I + iA + \frac{(iA)^2}{2!} + \frac{(iA)^3}{3!} + \frac{(iA)^4}{4!} +...$$
$$e^{iA} = I + iA - \frac{A^2}{2!} - i\frac{A^3}{3!} + \frac{A^4}{4!} + ...$$
Computing explicitly the infinite sum in complex algebra, we get the answer
$$e^{i\begin{bmatrix} 1 & 2 \\ 0 & -1 \end{bmatrix}} = e^{\begin{bmatrix} i & 2i \\ 0 & -i \end{bmatrix}}=$$
from which
$$e^{i\begin{bmatrix} 1 & 2 \\ 0 & -1 \end{bmatrix}}|b\rangle = \begin{bmatrix} 0.54+ 0.84i & 1.68i \\ 0 & 0.54 - 0.84i \end{bmatrix} |b\rangle$$
Eigenvalue decomposition (following this):
Let
$$A = \begin{bmatrix} 1 & 4 \\ 9 & 1 \end{bmatrix}$$
We note that
$$ \begin{bmatrix} 1 & 4 \\ 9 & 1 \end{bmatrix} \color{red}{\begin{bmatrix} 2 \\ 3 \end{bmatrix}} = \color{blue}{7} \color{red}{\begin{bmatrix} 2 \\ 3 \end{bmatrix}}$$
$$ \begin{bmatrix} 1 & 4 \\ 9 & 1 \end{bmatrix} \color{red}{\begin{bmatrix} 2 \\ -3 \end{bmatrix}} = \color{blue}{-5} \color{red}{\begin{bmatrix} 2 \\ -3 \end{bmatrix}}$$
Combining both equations:
$$ \begin{bmatrix} 1 & 4 \\ 9 & 1 \end{bmatrix} \color{red}{\begin{bmatrix} 2 & 2\\ 3 & -3\end{bmatrix}} = \color{red}{\begin{bmatrix} \color{blue}{7}\times2 & \color{blue}{-5}\times2\\ \color{blue}{7}\times 3 & \color{blue}{-5}\times -3\end{bmatrix}} = \color{red}{\begin{bmatrix} 2 & 2\\ 3 & -3\end{bmatrix}} \begin{bmatrix} \color{blue}{7} & 0 \\ 0 & \color{blue}{-5}\end{bmatrix}$$
Noting further that
$$\color{red}{\begin{bmatrix} 2 & 2 \\ 3 & -3 \end{bmatrix}}\color{green}{\begin{bmatrix} \frac{3}{12} & \frac{2}{12} \\ \frac{3}{12} & -\frac{2}{12} \end{bmatrix}} = \begin{bmatrix} 1&0 \\ 0&1\end{bmatrix}$$
we obtain
$$\begin{bmatrix} 1 & 4 \\ 9 & 1 \end{bmatrix}=\color{red}{\begin{bmatrix} 2 & 2\\ 3 & -3\end{bmatrix}} \begin{bmatrix} \color{blue}{7} & 0 \\ 0 & \color{blue}{-5}\end{bmatrix}\color{green}{\begin{bmatrix} \frac{3}{12} & \frac{2}{12} \\ \frac{3}{12} & -\frac{2}{12} \end{bmatrix}}$$
$$A = U\Lambda U^{-1}$$
This provides an extremely efficient computation for any $A^n$, since
$$A^n = AAAA...$$
$$=U\Lambda \color{orange}{U^{-1}U}\Lambda \color{orange}{U^{-1}U}\Lambda U^{-1}...$$
$$=U\Lambda^n U^{-1}$$
$$=\color{red}{\begin{bmatrix} 2 & 2\\ 3 & -3\end{bmatrix}} \begin{bmatrix} \color{blue}{7^n} & 0 \\ 0 & \color{blue}{(-5)^n}\end{bmatrix}\color{green}{\begin{bmatrix} \frac{3}{12} & \frac{2}{12} \\ \frac{3}{12} & -\frac{2}{12} \end{bmatrix}}$$
Given
$$A|x \rangle = |b \rangle$$
the HHL algorithm finds $|x \rangle$ by constructing $$| x \rangle = A^{-1}|b\rangle$$
Suppose all eigenvalues and eigenvectors of $A$ are known, then we have knowledge of the correct eigenvalue decomposition
$$ A= \begin{bmatrix} 1 & 4 \\ 9 & 1 \end{bmatrix}=\color{red}{\begin{bmatrix} 2 & 2\\ 3 & -3\end{bmatrix}} \begin{bmatrix} \color{blue}{7} & 0 \\ 0 & \color{blue}{-5}\end{bmatrix}\color{green}{\begin{bmatrix} \frac{3}{12} & \frac{2}{12} \\ \frac{3}{12} & -\frac{2}{12} \end{bmatrix}}$$
and immediately its inverse as well:
$$ A^{-1} = \color{red}{\begin{bmatrix} 2 & 2\\ 3 & -3\end{bmatrix}} \begin{bmatrix} \color{blue}{\frac{1}{7}} & 0 \\ 0 & \color{blue}{-\frac{1}{5}}\end{bmatrix}\color{green}{\begin{bmatrix} \frac{3}{12} & \frac{2}{12} \\ \frac{3}{12} & -\frac{2}{12} \end{bmatrix}}$$
since
$$ AA^{-1} =\color{red}{\begin{bmatrix} 2 & 2\\ 3 & -3\end{bmatrix}} \begin{bmatrix} \color{blue}{7} & 0 \\ 0 & \color{blue}{-5}\end{bmatrix}\color{green}{\begin{bmatrix} \frac{3}{12} & \frac{2}{12} \\ \frac{3}{12} & -\frac{2}{12} \end{bmatrix}}\color{red}{\begin{bmatrix} 2 & 2\\ 3 & -3\end{bmatrix}} \begin{bmatrix} \color{blue}{\frac{1}{7}} & 0 \\ 0 & \color{blue}{-\frac{1}{5}}\end{bmatrix}\color{green}{\begin{bmatrix} \frac{3}{12} & \frac{2}{12} \\ \frac{3}{12} & -\frac{2}{12} \end{bmatrix}}$$
$$=\color{red}{\begin{bmatrix} 2 & 2\\ 3 & -3\end{bmatrix}} \begin{bmatrix} \color{blue}{7} & 0 \\ 0 & \color{blue}{-5}\end{bmatrix}\begin{bmatrix} 1& 0 \\ 0 & 1 \end{bmatrix} \begin{bmatrix} \color{blue}{\frac{1}{7}} & 0 \\ 0 & \color{blue}{-\frac{1}{5}}\end{bmatrix}\color{green}{\begin{bmatrix} \frac{3}{12} & \frac{2}{12} \\ \frac{3}{12} & -\frac{2}{12} \end{bmatrix}}$$
$$=\color{red}{\begin{bmatrix} 2 & 2\\ 3 & -3\end{bmatrix}} \begin{bmatrix} 1& 0 \\ 0 & 1 \end{bmatrix} \color{green}{\begin{bmatrix} \frac{3}{12} & \frac{2}{12} \\ \frac{3}{12} & -\frac{2}{12} \end{bmatrix}}$$
$$= \begin{bmatrix} 1& 0 \\ 0 & 1 \end{bmatrix} $$
Suppose that
$$|b\rangle \rightarrow e^{-iA}|b\rangle$$
is the only physically allowable way of interacting with $|b\rangle$.
Then
$$ e^{-ik\begin{bmatrix} 1&4 \\ 9&1 \end{bmatrix}}(\alpha|0\rangle + \beta|1\rangle)$$
$$ = \left(I + ik\begin{bmatrix} 1&4 \\ 9&1 \end{bmatrix} + ...\right)(\alpha|0\rangle + \beta|1\rangle)$$
If $k$ has been sufficiently tuned to be small such that all higher order terms can be neglected,
$$ = \left(\begin{bmatrix} 1&0 \\ 0&1 \end{bmatrix} + ik\begin{bmatrix} 1&4 \\ 9&1 \end{bmatrix}\right)(\alpha|0\rangle + \beta|1\rangle)$$
$$ = \begin{bmatrix} 1+ik&4ik \\ 9ik& 1 + ik \end{bmatrix} \begin{bmatrix} \alpha \\ \beta \end{bmatrix}$$
$$ = \begin{bmatrix} \alpha+ik(\alpha + 4\beta) \\ \beta + ik(9\alpha+\beta) \end{bmatrix} $$
Suppose for instance that $\alpha = 3$ and $\beta = 5$, ie.
$$|b\rangle = \begin{bmatrix} 3 \\ 5 \end{bmatrix}$$
Then
$$ e^{-iA}|b\rangle \approx \begin{bmatrix} 3+23ik \\ 5 + 32ik \end{bmatrix} = (3+23ik)|0\rangle + (5 + 32ik)|1\rangle$$
The phase additions $23ik$ and $32ik$ encode the effect of interacting with matrix A.
Suppose further it is possible to make $|b\rangle$ interact somehow with $e^{iA^{-1}}$. Then
$$ e^{iA^{-1}}|b\rangle \approx \begin{bmatrix} 3+\frac{17}{35}ik \\ 5 + \frac{22}{35}ik \end{bmatrix}$$
now encodes the interaction of $|x \rangle = A^{-1}|b\rangle$ as desired.
Starting with a linear system in 3 unknowns:
$$ 3x + y - 2z = 7$$
$$ x - 3y - 4z = 15$$
$$ 2x - 2y + z = 12$$
We might initialize a 2-qubit state to
$$ |b\rangle = \begin{bmatrix} |00\rangle & 0 \\ |01\rangle & 7 \\ |10\rangle & 15 \\ |11\rangle & 12 \end{bmatrix}$$
the eigenvalues of the LHS coefficients are found by quantum phase estimation method to be:
Construct $$A^{-1}|b\rangle$$ by operating on $|b\rangle$ using
$$ |x\rangle = e^{U\Lambda^{-1} U^{-1}}|b\rangle - |b\rangle \approx (I + U\Lambda^{-1} U^{-1})|b\rangle - |b\rangle = A^{-1}|b\rangle$$
The HHL algorithm avoids computing $U^{-1}$ (which is $O(n^3)$), by first interacting $|b\rangle$ with the undecomposed $A$:
$$|b\rangle \rightarrow e^{iA} |b\rangle$$
and then changing mid-circuit
$$A=U\Lambda U^{-1} \rightarrow U\Lambda^{-1} U^{-1} = A^{-1}$$
using quantum circuit manipulations.