By having an efficient technical interview process, yes, you let good candidates go. Just as you do by only having certain target universities or requiring certain experience. But they don't give a fuck. They get 1000 applications a day. Hundreds of internal referrals. If they were to reject the ~100 candidates/week that get hired based off doing well in their technical interview and take the next 100, Google Engineering would be just as well off. Maybe better. (Harvard says the same thing about its incoming classes).
No technical interview will ever be perfect. But if you have a holistic process that is 50% based on past experience, and 50% based on being a top 10% performer in well-designed technical interviews (among other factors), that's usually good enough to take a bet on the candidate.