I think this is one of those things that's best explained with a whiteboard, but as far as I understand it the problem is that as the wavefront passes over the coast heading out to sea it's bent by refraction so that the angle between the direction of travel of the wavefront and the coast is reduced. In other words, your ADF will think it's following one line going straight to the NDB but it's really following another that's pointing to one side of the beacon and closer to the coast.
Here's a quick and sloppy diagram I knocked up in Paint...
R
[ 21 November 2001: Message edited by: Self Loading Freight ]