wiring of occupancy switch in 3-way situation (odd-looking instructions)
Yup, I agree with your read. That is exactly what's going on. 

I am fairly impressed that UL even allowed this... I seem to recall seeing a bulletin from  NFPA  to the effect of "alright UL, it's time to stop approving things that use ground for more than ground".  Although it may be still allowed since it is surely a millivolt current.  

Regardless, it's rather ingenious.  It liberates two wires completely, so for instance if the other switch is a remote spur, you can now use black and white for onward power.  

Still won't let the put the sensor at the remote spur, that would require 4 wires (line, load, neutral and sense) plus ground.