The “line up” in this case refers to an instruction given to a single airplane to position itself on the runway in preparation for departure (as in “line up with the departure runway heading”).

It is not “hey, multiple airplanes get yourself into a queue on the runway”.

There can be multiple aircraft on the runway at multiple times, so long as there's no conflicting operations.

It's used quite regularly at any moderately busy airport to reduce delays.

Examples where I've seen/heard it used in ATC comms:

Aircraft departing in sequence. eg A, then B. So: "Flight A (already lined up on runway 35L), cleared for takeoff runway 35L." (some short time later while Flight A is still in the process of taking off) "Flight B, runway 35L line up and wait"

Aircraft departing after an arrival. eg "Flight A cleared to land, 35L", and right as flight A has crossed the threshold: "Flight B, runway 35L line up and wait"

Also, as mentioned by others, when there are other movements to cross a runway between departures. eg "Flight A, at Foxtrot 5, cross Runway 35L. Flight B, runway 35L line up and wait"

Line up and wait will be used after the preceding departure has started their takeoff roll, so the following aircraft can be ready to take off once the required spacing is achieved.

It could also be used while other aircraft/vehicles are crossing the runway at other intersections.

Maybe not with big airliners. It's common for small planes to be told to line up and wait while the current aircraft (also usually another small aircraft) is in the midst of taking off.