The Ktor framework was designed with testing in mind, that's why it comes with a special test environment, which emulates web servers to some extent, without actually doing any networking, by hooking it directly into internal machinery, which processes ApplicationCall directly. Hence, there is less need for mocking and, due to this, the performance of application calls is faster.
In a nutshell, it’s perfectly capable of testing application logic, but you should make sure to set up integration tests with a real embedded web server.