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When you select "Allow to Reschedule" as a "Before Installation" option within the "User Interaction" tab of the package option, you are correct in your expectation that you can defer to a max interval that is defined when you select "Allow deferring for x <minutes, hours, days, weeks, etc>". This is the maximum amount of time that a user would be able to defer the installation.
If you have "Installation Deadline" also selected, this is the latest time for which the installation must begin.
Obviously, the two settings control the same thing. So, if both are selected, then the earlier of the two dates become effective. If the deferral interval expires, the installation will begin even if the deadline is for some time into the future. Conversely, if the Installation deadline is reached before the deferral interval elapses, then the installation is forced.
That is unfortunate to hear. It would be great if these settings worked together instead of conflicting. In my ideal world Allow deferring for would basically have the same functionality as the After InstallationReboot "Show dialog every x" with the deadline being the point at which they can no longer defer installation.