Confused about BB hiring practices

godotthey will be making an offer to someone else, but in case the other candidate declines, they want to keep some backup options open.

This.

If you give it up for dead, email them and tell them you have a weeks deadline to accept another offer but you would rather go to them. Then proceed to make love to a microwaved banana peel.

Feels good man.

Lol at banana peel image

To be frank, you are not their first choice and probably got dinged. Your hypothesis is correct in that they want to keep you around as a backup. So now here's the $1 million question, what are you going to do?

Well, at this point for this company, you really can't do anything to overturn their assessment of you. Even if you were to say "I'll work for free" that still won't work, companies usually aren't short on money to hire interns, especially BBs. So my advice to you is to forget and move on. Who knows? Maybe you'll get a call back or maybe you won't. But better to look for alternatives than waiting anxiously.