Yes, it is real, whether individual ex-elders here have experienced or heard of it or not. It's done, just like DOC said, when local BOEs and/or appeals committees screw up. It's done from HQ. It means that the DFing never should have happened. It's rare but it occurs. A CO explained it to me back in the 1980s. I know of one case of a high powered elder getting wrongly DFed by his enemies, other high power elders who hated him. The service department at Brooklyn (pre-Patterson/Warwick days) had to step in and rescind the DFing.
It's mentioned in the CO manual for a reason (see SBF's quotation above).