This is in many ways a big subject, with some hefty questions. I'll give some straight to the point information, but am conscious that this information raises other questions.
In a nutshell, figures of debt for individuals were arrived at by income averaging. Income averaging is an algorithm which is used as financial modelling, for example for to figure out a provisional tax rate for what are called "Special Professionals", people in the arts or sports etc who tend to earn money in clumps. A centrelink debt as calculated using an income averaging algorithm was deemed legal by the DSS. That is where the debt comes from. It wasn't on the books, the algorithm created it, and once created the hundreds of thousands of people found to be in debt via this method were notified as having to either pay up, or prove that they didn't owe a debt.
Now, the court has already found that this process of deeming a person to be in debt based on the income averaging algorithm is illegal, that is done and dusted. The process now (the RC) is supposed to figure out how it came to this, in theory so as to prevent it from happening again, we can hope.
For some good case studies as to what this process meant for every day people, check these accounts (clicky)