The driver monitoring detection primarily uses the interior camera to monitor the driver's eyes. If the driver's eyes are visible to the camera and forward, you will see the "Hands-on not required" state. If the driver's eyes are obscured by a cap or if the interior camera is covered, then the system uses the torque detection on the steering wheel to determine if the driver's hands are on the wheel. That's why this incident shows "Detected." For some reason in this case, the camera monitoring of driver's eyes was not available, therefore the driver needed to keep their hands on the wheel. The data shows that the driver's hands (or a "defeat device") were on the wheel.
re: A defeat device... Tesla has updated their driver detection algorithm multiple times to detect "defeat devices." If a device places continuous, steady torque on the steering wheel, the software will detect that it is not a human hand and will disable autopilot/FSD. That said, people are still jury-rigging ways to avoid keeping their hands on the wheel like the moron below, which could absolutely contribute to an accident.
Yes, it will slow down using re-gen braking. In the data for this incident, you do see a slight deceleration begin once FSD is disabled, but it is very gradual. Tesla states that the driver must immediately take over once FSD is disengaged, but based on my experience, re-gen deceleration is not as "immediate" after FSD disengagement. I think there is a more gradual application of re-gen after FSD disengagement to avoid abrupt deceleration in the event of an inadvertent disengagement, but that is my theory based on experience.