How can adding audio delay correct for audio that is already delayed?

Normally it couldn't but in conjunction with your display's inherent video delay it can.

Assume your LCD, DLP, or plasma display delays the arriving video signal 100 ms  (TV's range from around 60 to 120 ms but we've seen some 4K projectors delay video 3 times that).  You would set your DD740 for 100 ms audio delay and if the arriving signals were in perfect sync (rare but it could happen) you would see perfect lip-sync.  You can think of that as the "zero" position where you have canceled your display's video delay but you aren't impacting the arriving signals' lip-sync error at all.

Normally the arriving signals will already have delayed video so for perfect sync you would usually delay audio above 100 ms to match the total video delay that has accumulated in the signal from all sources.  For example one program or DVD may have video delayed by 40 ms and your DD740 setting for perfect sync would be 140 ms whereas another might only have a 25 ms video delay and your DD740 setting would be 125 ms.

When the signal arrives with audio already delayed you will adjust the DD740's delay "below" 100 ms  - the "zero" point - effectively using some of the display's video delay to cancel the audio delay in the signal.  For example if the signal arrived with 40 ms of audio delay your DD740 setting would be 60 ms.

So, in conjunction with your display's video delay the DD740 can actually correct for audio delays in the arriving signal up to X and video delays up to 680 - X where X is your display's video delay.  

This is why it is so important to turn off all audio delays you have may elsewhere in your system and let the DD740 provide all audio delay.

Audio delay settings can sometimes be found: In your TV's audio menus, in your AV receiver (or sound bar) settings, in some set-top-box audio menus and even some DVD and BluRay players so be sure they are ALL set to zero.