How mechanically does it work when a return flight is cancelled?

The COC states the customer may insist on a refund. If they do not DL will rebook them for free on the next available flight (same class).

I thought that what happens is that you will see yourself booked on the next flight per DL gremlins. I know that has twice happened to me. I would think you would have to ask for the refund or alternative booking before departure of that flight. Anything after that and I do not see DL as even morally owing a refund.

I would expect DL to be generous when somebody calls in a bit late.