I'm trying to compare it to alternative solution which prevents the high load in the first place (puts limit on the CPU/mem shares). By limiting the app rather than nginx itself, you can still set the error page for the case where the backend is too busy (handle 502 bad gateway).
The nice part of doing that at system level is that you can prioritise other processes over nginx, but otherwise ensure the app can take 100% CPU if nothing else is interested in using it.
Of note, the module is a port from the nginx tuned by alibaba which is quite a credible source.
I have served over a billion pageviews/month, and cutting off requests at a certain load threshold with a custom error page to users is a good idea. Otherwise the users will just get a huge slowdown or a backlog of requests which will cause a prolonged server recovery.
Also as the author vozlt mentioned, you can use "average of request processing times" and custom http errors. Also, it is much easier to use than the methods you suggest.