Yeah, this is a fairly common compromise, and even helps in the stupid cases where you can't give person A a job title higher than person B who will be mortified if they don't have the best sounding job title, but you still need to give person A a raise and a feeling of advancement (so glad I don't work at a place like this anymore). So you give them some variation on their current job title (it's not a promotion over you, person B!) and a raise, and call it a day.

It depends on how effectively bureaucratic the bureaucracy is. If all workers have to have a job title that's already in the database, and all job titles have an assigned salary, then you're out of luck.

This has been extremely fascinating reading about job titles. I'll never understand why people care about them.

You should care about them. They facilitate movement in between companies. If you're a "manager" at a major organization but are actually doing VP level work and are getting paid like a VP, it will be very difficult for you to convince another company that they should hire you as a VP. You'll also get lots of cold calls from recruiters about jobs that you are severely overqualified for.