I agree. There's a big difference between a long, flowing formal gown and cocktail casual women's clothing. If the Gitlab women showed up in the former they'd look and feel out of place, just like if a man showed up in a tux he might feel out of place.

Should they have communicated less information and just said 'Cocktail casual', leaving the receivers to interpret what that means? Is the existence of 'cocktail casual' fashion itself offensive?

I googled cocktail casual and I got everything from nice jeans to calf-length (midi) and even longer dresses.

Most of (not all) my results are above the knee skirts.

According to reference.com, “cocktail casual” is not formally defined: “Traditional cocktail attire usually consists of knee length dresses for women, dark suits with a tie for men and fancy shoes for both. Cocktail casual, however, [...] has not yet been concretely defined. It means different things to different people, so partygoers who know the host well should feel free to ask for more specific instructions.”

Knee-length dresses (i.e. “short dresses”) seem to reasonably fall under the definition of “cocktail casual”. For example: https://www.clbxg.com/Cocktail-Casual/

What's the relevance of their having used the term correctly?

Cause some events have dress code which is applying to everyone not only women. And it is totally accepted standard for host to set this dress code. I dont see nothing wrong here