You read that right, more grain can equal less fermentables.
The limit comes when the water absorption of the grain approaches that of the water that can be added to the mash vessel. Grain absorbs about 0.8 quarts of water per pound. So as your mash out thickness approaches this more and more of the converted sugars are trapped with the water absorbed by the grain.
For example we can compare 9 lbs of grain to using 7 pounds. It would be easy to assume that using 9 pounds of grain would produce more sugar in the final wort, but this in not always the case.
Say your mash tun holds 4 gallons like my small batch system. If you add 9 pounds of grains they will displace 0.72 gallons. Leaving a 0.25 gallon head space for stirring, this limits the water you can add to 3.03 gallons. Grain absorption will be 1.8 gallons, leaving you with first runnings of 1.23 gallons. This is 40% of the water that was added meaning that only 40% of the extracted sugars are in these runnings. 40% * 34 GU/lb * 9 lbs = 122.4 gravity units of sugar
If only 7 pounds of grain were used, they would displace 0.56 gallons. Leaving the same space for stirring as previously the limit to the water added is a little more at 3.19 gallons. Grain absorption is a little less at 1.4 gallons. This leaves first runnings a fair amount higher at 1.79 gallons. The runnings are 56% of the total water. 56% * 34 * 7 = 133.28 gravity units which is about 11 points higher!
These examples are for a mash without a sparge. Each sparge that is added will increases effeciciancy. If you typicaly do one sparge then the higest final gravity will be achived with 2 pounds of grain per gallon of mash volume.
Number of sparges
Maximum pounds per gallon
1.75 lb/gallon = 2.3 qt/lb
2 lb/gallon = 2.0 qt/lb
2.25lb/gallon = 1.8 qt/lb
3 or more sparges
2.5lb/gallon = 1.6 qt/lb