It was important for the nazis to keep businesses running, and have most people continue their lives without noticing major changes. Most people would not come into contact with the second system, and barely knew it existed. But if you entered the second system, you often would not come out alive.
I agree that the phrase is somewhat contradictory, but it is the best way to describe what was going on. As long as you were within the confines of the normative state, you experienced a rule of law. But as soon as you stepped into the prerogative state, anything could happen. So a "rule of law", except that it didn't apply to everybody, but only to most people. And importantly, the existence of the prerogative state is mostly hidden when you're in the normative state (so unlike a king)