I don't get how the word "incompatible" can be understood as anything other than both license has aspects which makes combining them impossible. But owell, lets see what the license text actually say:
Any Covered Software that You distribute or otherwise make available in Executable form must also be made available in Source Code form and that Source Code form must be distributed only under the terms of this License. The Modifications that You create or to which You contribute are governed by the terms of this License.
If you distribute source code, this license means that you must use this license. You can't use some other license, as its not compatible with the distributor deciding what license to use. CDDL license require that any source code distribution use CDDL as its license, and it is incompatible with any other license that has similar condition. CDDL is incompatible with GPL because GPL has similar conditions as CDDL.
If we were to make an identical copy of the CDDL license and call it CDDLv2, those two identical twins would be incompatible with each other. Software under CDDLv1 would not be permitted to be combined with software under CDDLv2 and distributed as source code.