On the one hand, this is good for people who need time to adapt to college. It's a big change, especially for young people who are living apart from family for the first time. You have to adapt to living alone AND an entirely new social environment AND a much more independent/rigorous academic environment all at once.
On the other, it may just delay the same result. If someone knows their first semester doesn't really count, they may not put in the time to adapt, then crash out anyway in the second semester when it becomes real. I also feel our society tries a little too hard to insulate young people from failure, and I wonder whether that means people avoid learning important lessons earlier.
I guess the biggest advantage is it lets someone spread the growth out over a little more time rather than getting railroaded at once. This approach is probably most useful for someone who is genuinely trying and struggling, rather than for someone who is not really putting in any effort. It's probably better to help the former, so overall it's probably a reasonable approach.