Because while they used GitHub in the most common manner, to host a code repository. Not only did they violate the rules technically, they also inadvertently violated them practically.
README.md is a markdown file. GitHub parses this into that little blurb you see below the repo. This is technically a violation of the rules. Part of your project is technically generated by GitHub.
Yes, it is dumb. Yes, I would have done the same in your position. Because I also would not have read the rules that deep. Or just forgot that they counted GitHub among the template generators.
Ultimately, I would have just been kicking myself because I would have felt that this could have been avoided.
I'd also ignore the statement from peterkelly that you're probably smarter than those running the competition or who made the rules.
Also, consider that even if you were selected for consideration, you still may not have won. They didn't disqualify you because they were scared of your prowess. They disqualified you for violating a rule. I'm not sure how many entries they get per year, but it's likely they're looking more for reasons to drop than to add.
Remember, there can be only one winner. And that winner will be the team that made the fewest mistakes.