MIMF

I have had a few instances where I'm making a repair on an old neck where I can't get the neck dead straight. I can pull it to average out to straight but there will be little gaps of light showing under the slotted straight edge. Many times I'd guess a neck is out between .005" and in bad cases up to maybe 012" but just in certain spots (usually between the nut and 9th fret somewhere and then after the 9th and heel --- when the straight edge is touching at the first, 9th, and last fret --- so averaged out to straight overall but with some gaps between the fingerboard wood and the slotted straightedge).

What do I do in these cases?

Ultimately the frets are the playing surface so I'd guess this is ok. But how do I go about fret leveling? My guess would be to pull the neck into a very slight back bow that way the dips at say the 7th and 14th etc will all get hit by the fret leveling board. Is that a right assumption?

IMHO the slotted straightedge is a solution looking for a problem.
As you concluded, the playing surface is the frets and they are what matter.
For leveling,I basically just put the neck to where fret removal will be least

Nick,

I mostly agree with Jeff, when doing a fret dress, I adjust for least material removal of the frets.
However, the notched straightedge is useful for refrets and new necks, when I make sure the frets are level with the plane of the fretboard, which gives the most consistent feel across the neck, and longest life of the frets (allows for most dressings before a refret is required). Of course, this is contingent on the fretboard surface being perfectly flat before installing frets, and not bending inconsistently under string tension. Some "squirrelly" necks require simulated string tension before leveling to achieve a level board once string tension is applied, but good wood selection and proper drying should avoid this, it's only on original necks that I go to this effort, anything new that behaves this way is discarded.