Typically, short selling done naked, even on the US exchanges. But, you still need to pay for the stock on settlement day (typically 3 business days after the trade date).
What a short sale works out as is "borrowing" the shares you do not own from the firm. Some one (the buyer) is expecting shares that they bought to be delivered to their account. IF you have sufficient a/c equity, firms will often let keep a short position open for LONG periods of time after they should have settled. This is a "book entry" settlement between firms. As far as the short seller is concerned, the trade is unsettled, since the short seller has not actually covered their short. This is what the piece is partially referring to - unsettled trades of various flavors, including a "fail" when actual shares do not change hands.
The real problem is when firms play the "float" of the settlement period, this was also alluded to in the original post. I have seen estimates that a significant number GREATER THAN a corporation's outstanding shares are on some one's (Firms, Shareholders, and DTC) books on any given day.
Now, the short selling that firms do overseas is "downtick" short selling. This is prohibited by US Law - you can only shortsell on an price uptick or zero tick. And yes, it is damnably hard to catch an downtick short sale executed on a foreign exchange.