True. I once had a scratched CD (so much for the myth how CDs are indestructible). It refused to play. I then attempted to rip it using the most strict setting. It took almost the entire afternoon for the burner to read the CD properly, but in the end it succeeded! So the burned CD now plays nicely :)
I would assume that a typical CD player can read the spinning CD ahead and load the bytes into its memory. It then streams the bytes into the DAC while continuing to read ahead. Any problematic areas of the CD would then get a chance to be re-read and re-read again, while the player is simultaneously streaming the already read valid bytes into the DAC. Modern processors excel at this kind of parallel processing, so I'd be surprised if CD players are not equipped with such algorithms.