General question:

I have seen many references to programs where they claim the kids work a grade or two ahead. But isn't the differential between these very smart kids and their peers already at least a grade by the end of kindergarten? So what value is added by just having them keep pace? Why is this phrase so common and what does it really mean?

Value in education is challenging kids and that can be done in many ways. What's good for each child is different for each child. Sometimes working a year ahead of other schools or state cirriculium is good for some kids. Sometimes this pace is not enough. The value can be increased with more depth and/or pace as per the indivual child's needs/ability.

I would say that exact thing about my dd's school...however, the kids are further differentiated for reading, spelling, and math.
This allows some kids to go even further if necessary. 1-2 grade levels is just the baseline.

It's not perfect, but it's about as close as we're going to get.