I think I agree with almost all of what you said! I don't view ICs as below or above management, but as complementary to each other.
I don't actually know what her role was, but I'm not sure it matters too much. Typically, I've seen directors in two kinds of capacity: people management or strategic/technical vision. For both of them, there's a ladder. For example your career progression might look like:
- Manager, Senior Manager, Director
- Product Designer, Product Design Lead, Director
In both cases, "Director" isn't an entry-level role. You don't get hired into it fresh out of school, for example, and your scope of influence is expected to be much larger (regardless of whether you're influencing people or vision) than someone at the "bottom".
By contrast, her new role (Associate Developer) _is_ an entry-level role.
That's where I think the "demotion" terminology makes sense. I also agree with other commenters who note that it's most likely meant in a tongue-in-cheek way to drive clicks. But for me, there's a bit more to it than just the cheeky clickbait headline. Have you ever wanted to change things up at your company, but felt constrained, knowing that others would perceive you based on your previous performance in a previous role? I definitely have. The allure of a demotion seems pretty real to me.