Within the world of the Renegade AU, the term was coined by Krasnny as a code phrase that quickly informs investigators and journalists alike of the theory that the events chronicled in the books that Fazbear Entertainment released about the megaplex weren't just made up red-herring stories, but are part of an elaborate cover story to cover up the experiments that Fazbear Entertainment had been running within that VR environment in order to conceal what the moles had found.

If the contents of the stories were based on events from the VR environment, it would offer an explanation as to why the moles had not yet returned. It would not be the first time Fazbear Entertainment has attempted a cover up on this scale, and it makes sense that they would: missing persons reports had been filed for the MIA moles prior to the release of these collections of tales. It would make sense that Faz Ent would be proactively discrediting the moles. Especially considering that Faz Ent knows that even death cannot silence whistleblowers. So they have to be keeping the moles captive somehow.

Within the VR space where the events described in those stories took place

This is going to be THE most CG dense game I've made so far. The fact I am drawing them BY HAND is NOT HELPING. The actual TalesVRWorld theory is just that Tales takes place within a VR Environment, and most branches of it have a lot less grand scheming going on, but I wanted to make the name of my beloved theory diegetic within my AU (I already made the novel titles semi-diegetic in the form of calling the events from the novels the "SL3, TW1, and CL4 incidents", so why not also make a theory name diegetic).