But no, that's the opposite - here sub-context files REPLACE the ones above it rather then augmenting it - and I think that deviating in this way is kinda' dangerous in that user's might not notice this difference.

I think it's just poorly written. Further down:

> What if instructions conflict? > The closest AGENTS.md to the edited file wins; explicit user chat prompts override everything.

This seems appropriate for hierarchical AGENTS.md files? How would it even realize there was a conflict if it hadn't read both files?