No, the argument is that the best person cannot overestimate his own rank, and the worst person cannot underestimate it. The better you are the less room there is for you to overestimate your skill, second place can at most be off by one etc.

This effect would disappear almost completely if they instead of estimating their rank they estimated their score, since then unless the test is so easy the best scores perfectly there will be a lot of room for everyone to overestimate and underestimate themselves.

But as is when the top 10% all estimate themselves to be in the top 10%, you will say they are underestimate themselves since on average the top 10% are in the top 5%. At the same time if the bottom 10% say they are in the bottom 10%, you will say they overestimate themselves since actually on average they are bottom 5%. But both these groups were making the same mistake, and its impossible for that not to happen unless everyone is perfect.