Thats my understanding also. the game models that if the provinces can supply you, you will have enought supply of food, water and ammo. But it is not a good idea to parachute troops deep into enemy land. They will not last long and will only be an irritating bug until they are completely destroyed and therefore wasted manpower and equipment.
The US player in the video did it only to irritate Daniel and to show off a paradrop.
PDS has a limited amount of resouces to make this game. Everything realistic cannot be modelled in.
Well, it depends on the circumstances if exploits are possible due to this. In HoI3´s early days, there was a guy (forgot his name, sorry) who mass-dropped as germany against the soviets and it was veeeery gamey and triggered a lot of debate. I could imagine, that in MP, it could be a problem (you can "annoy" a human opponent into submission) . It´s always tricky to handle paras in a balanced fashion.
But even if you send troops to deal with the paras: If movement into enemy provinces is too fast, it can still be tricky to catch them, as they hurry from one province to the next, widening their supply base in the process.
Your last sentence made me chuckle. You probably meant to say "Not everything that is realistic can be modelled [in]." The way you put it, it sounds like nothing realistic can be in the game.
EDIT: As i kept this Gedankenexperiment running in my thoughts, i stumble upon another
potential issue: Say, you keep conquering provinces with your dropped paras. At some point, the supply area will become so big, that a new one will be created. The two will be handled seperately and one will only spill over so much to the other. Your paras can only be in one at a time though. So at some arbitiary point, that you possibly can not even predict, your supply situation abprubtly changes.
Before: 10 provs providing 0.5 supply each = 5 supply avaiable
After: 11 provs providing 0.5 supply each, but 10 of these only spill over half of theirs = 3 supply avaiable, if your paras are in the 11th province (2nd area).