"If the landlord simply advertises "folk music here tonight" then under the new guidance that should be OK. However if he advertises a named performer then it's regulated entertainment.

But what sense is there in this? How can the words of a advert change the risks presented to the licensing objectives?"

I agree it's nonsense, but at least under the new guidance the distinction is a bit clearer. If the landlord is in a position to advertise a named performer then it suggests he is promoting an event, rather than merely permitting incidental music - a crucial distinction for the purposes of the Act. It also suggests a different sort of event from what the more informal incidental music might provide, although this isn't necessarily the case in practice.

I am not a lawyer, but my understanding is that while the DCMS's guidance may have no statutory force, an authority which ignores it (especially if their policy actually contradicts it) could be on shaky ground. A court would look at the official guidance to help it decide how the Act should be interpreted (although it would also look at other legal precedents). The problem is that these issues are unlikely to be tested in court, it's easier for the licensee to just agree to the authority's demands even if they're wrong, easier still simply to stop the music.