I've talked about why it's destructive to RPGs to implement a rule of "if you don't like it, change it!" But if you talk about this with RPG fans you will be met with resistance. Isn't it the case that the utlimate rule in RPGs is that the Game Master can do whatever the hell he wants? Well, there certainly are many modern (post 90's) games that explicitly say this. But I contend that this is not how things were understood in the early days. Gygax is actually very explicit about this at many points in the 1st Edition AD&D rules. However, his statements are scattered across the books, and many people pretend not to be able to understand "High Gygaxian." Therefore I will start by discussing what the Black Box (i.e. the lead-in to the Basic D&D Rules Cyclopedia) calls the "last rule." This is "if you don't know how to handle something, make up rules for it."
Now I'm sure that there's a lot of RPG fans who hear that and say "that means that I can make up whatever I want!" But this is due to not carefully reading. It's not "make up rules whenever." It's "if you don't know how to handle something, make up rules for it." That is, making up rules is something that you do when you run into an unexpected situation, or when the rules exist but it would disrupt the flow of the game too much to look up the specifics. Implicit in this statement is the fact that in other situations you follow the rules. That is, the license to ignore the rules is not because the rules are only suggesitons. Rather, it is an admission that the world of role playing is far too expansive for rules to cover all situations (or to cover all situations that do arise logically and fairly.)
Think of baseball. Suppose that the infield fly did not exist, but a team consitently tries to get double plays by dropping easily caught infield fly balls whenever the players stayed on the base (allowing for forced outs.) The umpire can see that this is not technically against the rules, but so outside the spirit of baseball that it shouldn't be allowed. So he declares that in this situation play continues as though the ball had been caught, regardless of whether it actually is caught. This is how a good DM acts; he sees a situation that is clearly not normal and makes a judgment call.
And in fact this sort of situation is exactly what the Black Box is talking about. In one of the "dragon card" tutorials for DMing, they give the example of yanking a rug out from someone. How do you handle that? This certainly is not covered by the rules; keep in mind that we are dealing with Basic D&D here which has very limited systems outside of spells and combat. It suggests that maybe you do a saving throw (perhaps against Dragon Breath, representing dodging?) Or maybe you do an ability check to get under the character's dexterity score. Or maybe you have a percentage check determined by the DM on the spot. Any are valid options, though once you have picked one you should try to be consistent if the same situation arises in the future. In contrast the last rule would not apply to something like whether a character is shot by an enemy archer, or if a character can resist a Charm Person spell, since there are clear rules for these situations.
The modern understanding of a DM would be like an umpire who arbitrarily decides halfway through the game that you need to run counterclockwise around the bases, or an umpire who is upset that the game isn't tense due to one team being up by 10 runs, and so giving 8 free runs to the other team. No one would enjoy baseball if the umpire acted like this. Remember "Dungeon Master" wasn't even the original term for the position; the original white box rules call instead for a "referee."
Indeed there are many places in the 1st Edition source books where it is clear that Gygax really does want the DM to function primarily as a referee, meaning that the DM has some leeway with the rules but cannot ignore them at will. Now obviously any playgroup can ignore the rules regardless of what Gygax says, but you can do this with any game. Just because people give out money for landing on Free Parking in Monopoly, that does not mean that the game is intended to be played that way. When it comes to AD&D we actually have a lot of words from Gygax himself in the books, which I will detail here. (I believe that Gygax's intent was slightly different in the original rules, but not as willy-nilly as modern play. We'll get to that after looking at AD&D.)
In the preface to 1st edition's Dungeon Master Guide Gygax is quite up front about the impossibility of covering all possibilities in the rules:
Naturally, everything possible cannot be included in the whole of this work. As a participant in the game, I would not care to have anyone telling me exactly what must go into a campaign and how it must be handled; if so, why not play some game like chess? As the author I also realize that there are limits to my creativity and imagination. Others will think of things I didn’t, and devise things beyond my capability. As an active Dungeon Master I kept a careful watch for things which would tend to complicate matters without improving them, systems devised seemingly to make the game drag for players, rules which lessened the fantastic and unexpected in favor of the mundane and ordinary. As if that were not enough hats to wear, I also wore that of a publisher, watching the work so as to make sure that it did not grow so large as to become unmanageable cost-wise
A little bit later on he talks about how rules will vary from playgroup to playgroup:
With certain uniformity of systems and “laws”, players will be able to move from one campaign to another and know at least the elemental principles which govern the new milieu, for all milieux will have certain (but not necessarily the same) laws in common. Character races and classes will be nearly the same. Character ability scores will have the identical meaning — or nearly so. Magic spells will function in a certain manner regardless of which world the player is functioning in. Magic devices will certainly vary, but their principles will be similar.
Something to note here: he is not saying that rules will vary because the DM will arbitrarily change how things work from session to session. Rather, he is saying that different playgroups may modify things like character races or magic spells due to flavor, balance, or reasons of personal taste. But presumably within each playgroup these changes remaing consistent. Note too how even while Gygax is talking about the variations that will happen, he is also stressing how minor they will be. Maybe there are different magical items, or slight modifications to how much strength you need to bash down a door, or maybe elves can advance further in level than in the base rules. This isn't a free for all, but a modification of a stable base. Gygax further expounds upon why allowing too many changes is a bad idea:
The danger of a mutable system is that you or your players will go too far in some undesirable direction and end up with a short-lived campaign. Participants will always be pushing for a game which allows them to become strong and powerful far too quickly. Each will attempt to take the game out of your hands and mold it to his or her own ends. To satisfy this natural desire is to issue a death warrant to a campaign, for it will either be a one-player affair or the players will desert en masse for something more challenging and equitable.
Without a stable set of rules to work from, the game devolves into the whims of someone or other. It may be the DM, or it may be the player who complains the loudest. Or maybe the DM tries to accommodate everyone, and ends up satisfying no one. In any case, it isn't an environment where players can plan and strategize, since any rule they base their plans on could easily change. In fact, the best metagame is to convince the DM to favor you, whether that be by complaining, flattery or even bribery.
Moving onto the introduction (yes, Gygax included a forward, preface and an introduction) and Gygax says this:
Thus, besides the systems, I have made every effort to give the reasoning and justification for the game. Of course the ultimate reason and justification is a playable and interesting game, and how much rationalization can actually go into a fantasy game? There is some, at least, as you will see, for if the game is fantasy, there is a basis for much of what is contained herein, even though it be firmly grounded on worlds of make-believe. And while there are no optionals for the major systems of ADVANCED D&D (for uniformity of rules and procedures from game to game, campaign to campaign, is stressed), there are plenty of areas where your own creativity and imagination are not bounded by the parameters of the game system. These are sections where only a few hints and suggestions are given, and the rest left to the DM.
Emphasis mine. This is Gygax nearly stating the Black Box's "last rule." The major systems are explicitly stated to not be optional. For example, you can't have characters ignore experience and gain levels at "story landmarks." You can't fudge the dice to make combat more "dramatic" by having the players not be in danger of death to early, and not come away unscathed at the climax. (We will return to this particular example in a bit.) But at the same time, there will be things not covered by the rules, and that is where the DM has full flexibility. Now Gygax does allow for some fudging even in established situations, but only when particularly unlikely events occur and only when it does not disrupt the core systems of the game. Here is the example he uses. He starts with a preamble about a bunch of players gathering and being excited for a game. His description continues:
They are gathered together and eager to spend an enjoyable evening playing their favorite game, with the expectation of going to a new, strange area and doing their best to triumph. They are willing to accept the hazards of the dice, be it loss of items, wounding, insanity, disease, death, as long as the process is exciting. But lo!, every time you throw the “monster die” a wandering nasty is indicated, and the party’s strength is spent trying to fight their way into the area. Spells expended, battered and wounded, the characters trek back to their base. Expectations have been dashed, and probably interest too, by random chance. Rather than spoil such an otherwise enjoyable time, omit the wandering monsters indicated by the die. No, don’t allow the party to kill them easily or escape unnaturally, for that goes contrary to the major precepts of the game. Wandering monsters, however, are included for two reasons, as is explained in the section about them. If a party deserves to have these beasties inflicted upon them, that is another matter, but in the example above it is assumed that they are doing everything possible to travel quickly and quietly to their planned destination. If your work as a DM has been sufficient, the players will have all they can handle upon arrival, so let them get there, give them a chance. The game is the thing, and certain rules can be distorted or disregarded altogether in favor of play
Two big take aways here. First, while Gygax allows fudging the roll for random encounters, he does not allow fudging the rolls in the actual combat itself. This is because having a fair combat with a chance of death is part of the core precepts of the game. Second, the reason he allows for fudging the random encounter roll is too frequent does not fulfill the intended purpose of random encounters.
To add: Track down the actual rationale for random encounters. Expand on how ignoring time rules unbalances quite a lot of the game.