mysqldump: flush-privileges option
The documentation is misleading.  I read it exactly the same way you do, which isn't what the utility does.

Adding --flush-privileges causes mysqldump to include the following in the backup file, after dumping the mysql schema...

--
-- Flush Grant Tables
--

/*! FLUSH PRIVILEGES */;


...which of course causes the server where the dump is being restored to re-read the potentially-changed grant tables. 

And, that's all it does.

Confirmation of this can be found in the source code for mysqldump "10.13" (the version bundled with MySQL Server 5.5.30):

if (flush_privileges &amp;&amp; using_mysql_db == 0)
{
  fprintf(md_result_file,"\n--\n-- Flush Grant Tables \n--\n");
  fprintf(md_result_file,"\n/*! FLUSH PRIVILEGES */;\n");
}


The using_mysql_db == 0 comparison was confusing at first, but it turns out to be the return value from a string comparison function where "0" means "identical."