Unless you're playing with house rules, when a player leaves a game, their country goes into CD and all of their units perpetually hold. If you want to move into a territory with a CD unit, you must support yourself in and the dislodged unit is disbanded.

Also, CD units can be supported to hold.

So the question I have is what does "ceded" mean in terms of game mechanics? That the supply centers and units change colors and *poof* now belong to those other countries? If so, that seems crazy to me and certainly isn't a standard rule.

It might mean that they have given up and will accept the orders given by the juggernaut. They would be told what to write by R/T. It would be effectively the same as long as the cowards (yes G/I are cowards of the worst kind) kept to the agreement.

Face to Face (FtF) games are played with an over all social setting. The issue is what makes the game fun and worth playing? Strict rules as written say that when a player leaves his country goes into Civil Disorder. If there is a fundamental dispute on this with one side playing rule lawyer and the other side calling for something creative that you cannot agree, then why keep playing if it is no fun?
In the 1960's in NYC we used to play with what I called 'Imperial' house rules. Some times games would break down into a 2 alliance pack that was not really a lot of fun for the bulk of the players, so each side would pick one player that was interested in playing it out and they would then do so. The rules were then:
1. you could not intentionally eliminate you ally
2. you could not intentionally take one of their centers
The game then was played out by the two players.