Yes, if you have two purebred dogs and breed them, they will register the offspring as being from two purebred parents. You can't breed that dog and register it's offspring though, and they are not registering it as a 'breed'...basically what it is is a piece of paper that says, "this dog has purebred parents of different breeds"
As far as the 'crappy registry' remark...I've seen some AKC dogs that were pretty 'crappy'--so I guess it's not just limited to the paper/registry behind the dog. Granted, CKC does allow alot of things they shouldn't IMO. However, I think it is 'crappy' breeders that make ANY registry look bad. Funny, people seem to willingly assign the blame completely on the registry for a ill-bred dog--I think maybe the blame should be put on the breeder instead...