No, it might as well mean (and I believe it does) that the difference between the 50th and 51st place is so small that it's either below sampling error or just plain not worth spending time on. It's the "I'm sorry, you're both equally good, but we had to pick one" situation. I'm pretty sure pg wrote about it at least twice (once wrt. college admissions, and once wrt. startups applying to YC).
EDIT:
This [0] explains it nicely.
Put yourself in the position of someone selecting players for a national team. Suppose for the sake of simplicity that this is a game with no positions, and that you have to select 20 players. There will be a few stars who clearly should make the team, and many players who clearly shouldn't. The only place your judgement makes a difference is in the borderline cases. Suppose you screw up and underestimate the 20th best player, causing him not to make the team, and his place to be taken by the 21st best. You've still picked a good team. If the players have the usual distribution of ability, the 21st best player will be only slightly worse than the 20th best. Probably the difference between them will be less than the measurement error.
The 20th best player may feel he has been misjudged. But your goal here wasn't to provide a service estimating people's ability. It was to pick a team, and if the difference between the 20th and 21st best players is less than the measurement error, you've still done that optimally.
I guess that for those couple of border cases, it's true that there wasn't a "good reason" why they were denied.
But for the majority of applicants, there is a good reason - because YC didn't think that you were one of the 50 or so best startups. This doesn't mean that being denied means that you're not smart or dedicated or that your startup is bad. It just means that they didn't think it was one of the 50 best they received.
EDIT:
This [0] explains it nicely.
Put yourself in the position of someone selecting players for a national team. Suppose for the sake of simplicity that this is a game with no positions, and that you have to select 20 players. There will be a few stars who clearly should make the team, and many players who clearly shouldn't. The only place your judgement makes a difference is in the borderline cases. Suppose you screw up and underestimate the 20th best player, causing him not to make the team, and his place to be taken by the 21st best. You've still picked a good team. If the players have the usual distribution of ability, the 21st best player will be only slightly worse than the 20th best. Probably the difference between them will be less than the measurement error.
The 20th best player may feel he has been misjudged. But your goal here wasn't to provide a service estimating people's ability. It was to pick a team, and if the difference between the 20th and 21st best players is less than the measurement error, you've still done that optimally.
[0] - http://paulgraham.com/judgement.html