How is place=municipality used correctly and are there country/state-specific rules not to use it at all?

It’s also possible that it is entirely accurate for Germany (meaning that Germany mappers really do map this way). And it may well be accurate for other countries too - I didn’t do a systematic check on how those 3500 place=municipality notes are distributed globally. Note that even in Austria these nodes are used in some limited circumstances, so a bare “do not use” would not be correct.

(Also, did you mean “do not use” on nodes specifically? I don’t think there is any issue with place=municipality on boundaries).