If a person mails a book with PBS DC, they automatically get their credit, right?  What happens if they use DC and the book ends up lost in the mail?  Does the requestor still get their credit back?  If so, does this "cost" the system an extra credit? 

Right, yes, and yes. 

If the book gets lost, both the recipient and the sender get their credit.  Yes, it does cost the system a credit.  It's sort of like you're buying "insurance" when you ship with PBS DC.