That section reads more like you can just have another domain redirect to omg.lol profile, as opposed to be served from that external domain.

Am I reading that correctly?

Meaning, your profile wouldn't be served from "example.com" but instead, "example.com" would simply do a browser redirect to "omg.lol/example"

No, that's not what those docs say you can do. It looks like you can either use a DNS A record to point "example.com" directly to omg.lol's IP address, or use a CNAME record to point "example.com" to whatever IP address "example.omg.lol" points to. In both of these cases, your browser's url bar would still say "example.com".

Yes that. But also in addition to that you can set A or CNAME records and do whatever you want. Just like with any domain. You can even set NS records and manage records with cloudflare.

So yes you can use your own domain but edit the profile with omg.lol