The idea of "gentle hands" is based in evidential practice, but it has become a bit distorted. Essentially it comes from the idea where someone was saying (I think it was on this thread) above about how young toddlers struggle to understand sentences/instructions which have negation (e.g. no hitting) so it is likely to be more effective, in general, to give toddlers positive instructions/tell them what you WANT them to do, rather than what you don't want them to do. Instead of "Don't run off!" "Come and hold my hand", etc. In fact this is also true for anyone of any age - you get more effective results (most of the time) if you tell people what TO do rather than what NOT to do. There are some exceptions where it might be unclear (e.g. I think "No Smoking" is clearer than "Thank you for keeping this area smoke free!")
So the idea is if you have a young baby/toddler who for example is slapping people or animals in an excited manner because they just really like being with them and they don't yet understand that they might hurt someone, you might block or hold their hands, show them a gentle stroking/patting movement and explain "Gently, like this. Kind hands."
But you do have to teach this, it's not innate knowledge for little children. It's also become overused/a sort of automatic phrasing in some circles whereas it is only really appropriate for that specific scenario. When child 1 wants to thump child 2 because child 2 stole their toy, they had no intention of being kind or gentle. Showing them how to gently stroke child 2 instead would probably not be effective in achieving what child 1 intended to achieve. Actually you probably want to teach them how to use verbal strategies either to ask for the toy back or ask an adult for help, or strategies on how to cope with the feeling of being upset/angry about the toy being taken.
Some childcare/education settings are using it as a sort of general policy ie part of a set of rules which everyone is to adhere to, as a replacement for "no violence/hitting". Which can work well with older children, perhaps early primary, because they are better able to make the connection or participate in a longer discussion and therefore understand that a school rule of "kind hands" means that we only use our hands to help each other/play/learn and not to hurt each other. Again for 2 year olds this is a bit too abstract, and 2 year olds also don't learn from being told rules in one context and then expected to apply them independently in another context. They are more likely to learn by doing things and finding out what happens. Most (NT) two year olds are able to pick up on social approval/disapproval, so they can tell when they are being told off, and provided that this isn't either the most reliable way of getting attention, or the only strategy they know, will usually experience this as aversive enough that they will be less likely to repeat the behaviour. Even though the actual wording of "kind hands" is not especially clear, children can tell through adult tone and facial expression that their behaviour is disapproved of. (Autistic children might not understand this, or might be upset by it but not make the connection to their behaviour).
In general the most effective way to change a behaviour is to strengthen the replacement behaviour but in order to do this properly, you have to understand what function the child is trying to achieve with the behaviour (which is not always a conscious aim). But if the nursery are doing ABC charts for this then they may be looking at the function of the behaviour next.
It probably sounds ineffective hearing that a child is being told "Kind hands" and redirected but it's likely there is more context to this which we are not aware of. This could be a temporary strategy while they look at the ABC and FBA. It could be that they are doing work with all of the children to strengthen a policy of "kind hands" (ie, non-violence) generally and teaching all the children what this means - for example, in some behaviour management programs you might teach a replacement for hitting in the moment, which is about doing something else with your hands. DS3's group (3-4yo at the time) did something which explored all different feelings and for anger they were taught that anger gives you energy - but when you feel so angry that you want to hurt someone, that energy needs to go somewhere, so they were supposed to run to the wall where a pair of red handprints was stuck up and "discharge" the energy into the hands, taking a deep breath as they did so, which does tend to help you feel calmer. It's essentially a distraction and an incompatible behaviour, something for children to do with their hands to replace hitting.
Not all behaviour management programs are well designed or evidence based, and it is also quite possible that nurseries will sometimes mix aspects of two or more approaches which are reliant on principles that work against each other rendering it ineffective, or staff may be poorly trained in how to implement ideas, or may have misunderstood aspects of the plan - it's always possible. But I think it is unlikely that there is a whole nursery full of staff speaking to children like the stereotype of an ineffectual wafty parent and then just wondering why it doesn't work. They are childcare professionals - they will have some logic and knowledge behind what they're doing, even if nursery behaviour management is not always perfect.