<<I've never heard of this before.  How can oil mask a flaw?>>
 
Oil masks a flaw on a shell exactly the way furniture polish masks a scratch
(which is a convenient way of saying I don't know exactly how - but it does
seem similar).  It won't hide heavy growth mends, or holes, or chipped lips -
but it often will hide fine scratches or abrasions.  Also, it can hide a faded
or dull spot by enhancing the color and gloss.  And, it can flow into a fine
crack and make it just about invisible.  So, best to be careful, especially
when purchasing shells.
 
Paul M.