The only answer is, "It covers a multitude of sins." Apparently, people are using all kinds of things to rub on coins, including slivers of wood.
FWIW, looking closely at the coin in question it seems like it either has significant wear or a heck of a lot of smoothing - The diamonds are barely there - maybe a poor strike, but if not it could have been xf details instead of AU. If the smoothing is so extensive that it looks like wear, shouldn't it be graded down a bit?
I have a 1923 Monroe Doctrine commemorative half dollar in a PCGS slab that says it was smoothed. It was lightly bead blasted in a few areas to remove something. It is beautiful, and I got it cheap. I covered the label and showed it to a dealer I know and asked him what he thought it graded. Without hesitation he said, "MS66". He didn't notice the work on it. There are some dangerous pieces out there.