"Theory" does not have to mean what you learnt in books. It could also be, "based on my experience, I always thought this was the best way to do things... In essence, my experience (rather than my books) had given me a theory of how to proceed. One day I discovered otherwise."
Alternatively, "practical experience" does not have to mean "doing rather than reading". Perhaps you had one way of working... but then discovered that acting to learn from others would give you more returns. After all, why else would you be looking to return to business school?
It could also simply mean "doing" rather than "thinking".
The successful applicant is one who is able to think clearly and define the question the way he/she wants it, rather than worrying about what the adcom wants