Yes, something like the example you gave. That is, that exists but it is not canon, instead, say "Diavolo appears in a fight with DIO Heaven Ascension, Novel Kars and Goku can be canon if Diavolo dies" it's being misused or at least the way I know the canon meaning, maybe it's wrong
Though canon just means what's officially accepted as part of a narrative. The best example would be Dragon Ball and GT. GT is a thing, it exists, but it isn't canon to the main Dragon Ball story. Or with JoJo, it'd be like, Jorge Joestar isn't canon or Eyes of Heaven isn't canon, they exist, but they aren't apart of the official story.