Go cycling when it is very cloudy or at night and you'll find that the temperature reported by the Edge 1040 is fairly accurate. However, the temperature sensor is in a device which is exposed to the sun, when it shines, and gets heated up although this is also affected by the wind (natural or induced by the cycling speed). It can be argued that the reported temperature reflects that felt by the cyclist who also gets heated by the sunshine (most noticeable when climbing a hill with minimal cooling breeze).
I've got a Garmin Tempe fitted under the stem so fairly well protected from direct sunshine. However, it still reads high on a sunny day due to radiation from the road surface. Weather stations have their temperature sensors inside screens to provide protection from radiation. It's impractical to carry a suitable radiation screen on the bicycle.
It can be argued that the Edge's temperature, which could be called apparent temperature rather than real temperature, is more representative of the conditions incurred by the cyclist and appropriate for calculation of hydration needs. Cycling on a sunny day feels hotter than cycling on a cloudy day with the same air temperature.
The device may display temperature readings that are higher than the actual air temperature if the device is placed in direct sunlight, held in your hand, or is charging with an external battery pack. Also, the device will take some time to adjust to significant changes in temperature.
