In making a computer game, rubber banding is the technique to allow computerized opponents to bend the rules to keep things exciting and "close" for the player. The term comes from racing games, where you can imagine a giant rubber band extending out from the player's car to pull lagging cars forward and winning cars back.
Rubber banding is a "game element," something done to make an experience more fun, in this case at the expense of accuracy.
There will be debates about this technique. Let's look at very specific examples of using rubber banding in racing situations.
If the racing educational simulation is to build familiarity with a map (travelers racing around a foreign city to get a comfort of the layout, students racing through a functioning ancient city), or to become aware of principles (driving tiny vehicles through magnetic fields), because the learning objective is not winning a race, "rubber banding" would increase interest without undermining the learning experience. If the course was on winning a race, be it chariot, NASCAR, or UPS truck, this technique would cripple the learning.
Once again, we all must get very specific in discussing the pros and cons of educational simulations in general, and any one in particular.