This is discretionary, but in general honored for applications within that time frame. This grace period was introduced to allow for some leniency with regards to any variety of external reasons why an applicant might not have gotten an application in before their current leave expired although that isn't really officially stated. It just makes sense. Here is a link to the general guidance for case workers on the subject, page 5.
It should be noted, this does not mean that any of those 28 days are simply forgiven. For citizenship applications, they still may be considered and held against the applicant. 3C may not apply. And if the application ultimately fails, those 28 days are included into the entire period of overstay.