It goes in order yes. And it restarts every turn. Like:

1) Foe = undead (if no skips to #2)
2) Ally HP = Critical (If no skips to #3)
3) Foe = any (does this if 1 & 2 are both false)
4) ... (never gets done unless #3 can't be done, i.e. if you need to cast Fire for #3 and you are out of MP)

After this character's turn it "resets" back to #1 and in his next turn the character will seek for undead foes, HP critical allies, then if not found, try to do #3 and if not possible try to do gambit #4. If #4 is also impossible (i.e no MP or no potions, etc...) and there are no other gambits the character just attacks the nearest foe in range.