"In which manual did you find the text "When the DFCS is not engaged, the pilot can push the N1 selector switch on the MCP to manually select the N1 mode." "
It's in the 737NG Boeing Maintenance Manual (D&O section). the quote was immediately preceded by...
"When DFCS is engaged in VNAV climb or LVL CHG climb, the FCC's command the A/T to N1 mode. When the DFCS is not engaged....."
I understood this to mean that the N1 button could not be manually pushed when the DFCS was engaged(in general).
Anyway, thanks for the feedback. BTW, when you say "Here is how I understand it", do you mean that this is what happened when you tried it in the sim? Do you recall whether or not the FD was on?
Thanks.
Rgds.
NSEU.