I think they are talking about two different things here.   

1) recapturing the de-occupied space in the data portion of a PDS
2) consolidating the multiple extents of a PDS


1) Unless things have changed a lot, PDS inserts and replacements, and even 
those of the same size, always get put at the end. Although, I believe IBM's 
PDS update program shipped with software distributions had code to update in 
place; I am not sure that TSO edit has that functionality. Why else did they 
come up with PDSEs ( and use VSAM )? Which I think might have performance 
issues. 

2) Using FDRs defrag pulls the various extents together; defragging the dataset.

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