Displacement measures volume, period. If an object floats you can weigh the displaced liquid.
But that isn't what's done when clculating body fat.
To calculate body fat you find the total body volume by displacement and enter that volume in a formula that includes weight. That requires total immersion, and total imersion by itself tells you nothing about the weight of an object.
In free fall? You are saying you can use displacement to measure mass in free fall? Surely this is a typo.
No, JS, it is not a typo. Displacement is one viable method of measuring mass in a freefall... so long as the object being measured is less dense than the liquid it is displacing. If it is less dense, shove the item to be measure into a sphere of a liquid, measure the increase in diameter, calculate the additional volume, multiply times the known mass figure of the liquid per volume. Voila, you know the mass of the object. If it is more dense, then other methods would have to be used such as an acceleration measure.
By the way, the differences between gravity and acceleration are indistinguishable to every one of our techniques for measuring either.