Perhaps what you mean is knowledge in artificial crafted problems is not the same as knowledge in practical tasks that you would perform in a real job on a real world application.
But nothing about a coding challenge is purely theoretical. Its mostly experience with the specific set of problems that come up in these challenges which is a different set of problems that come up in a commercial situation.
Sorry, just ribbing you a bit.
I believe the words do have subtle but distinct differences in meaning.
Agreed on coding challenges being a different set of problems then most commercial applications.