The key words here are "essentially military dictators." The Hindenburg and Ludendorff duo had broad powers within in Germany, but the civilian government conferred these powers on them. The duo operated within Oberste Heeresleitung (Supreme Army Command/OHL) which nominally was under the leadership of the Kaiser. Wilhelm II had already delegated his own significant powers to OHL leadership. The duo's OHL was the third of the war and Ludendorff went about restructuring the German state to better suit military prerogatives. He staffed the War Ministry and the new Kriegsamt with pliant servitors. Much of the existing organs of the German state such as the Foreign Ministry or the Chancellery likewise became subordinate to the OHL or were sidelined. The Kaiser arguably became a victim of the latter process as he found himself locked out of key decisions made by OHL and complained of his lack of real power.

So if the duo was a military dictatorship, it was a de facto one. OHL did not displace the existing branches of government but rather tried to subordinate them to military needs. This was not entirely successful and a good many bureaucrats and officials resented the power the duo exercised. This became important as Germany's military fortunes waned throughout 1918 and there was growing momentum for an armistice. Hotheads within the OHL still wanted a death ride and ride the war to a conclusion, but mutinies in the fleet as well as wider urban unrest forced Wilhelm II's abdication. The confused state of events led to the Reichstag seizing power and declaring a republic as well as an armistice.

This chain of events was what provided the nucleus of the Dolchstoßlegende. More than a few nationalists and the army leadership portrayed both the November Revolution and Ebert's declaration of republic as a betrayal of the front. According to this self-serving narrative, it was not the military that lost the war, but people in Kiel or Berlin. This pernicious myth gained a degree of currency because the OHL dictatorship was not a formal one but rather one that evolved within the existing structure of the Kaiserreich's government and military. The Reichstag and the central government both had the power to take away the broad authority of OHL, which they did. OHL was also quite canny in making sure that it was the new government that made the armistice overtures and not the military.

Of course, not everyone in Germany bought the Dolchstoßlegende. A good many Germans recognized that OHL's incompetence and promises of impending victory only served to make the defeat that much more bitter. But this was swimming against the tide of public opinion. Von Hindenburg helped to popularize the idealized vision of an undefeated army betrayed by communists, socialists, Jews, and other enemies of the Volk. The Dolchstoßlegende became much like many other types of conspiracy theories: evidence for the conspiracy simply did not matter. Adherents of the Dolchstoßlegende were not concerned much with proving the conspiracy so much as they were as using it as a political cudgel against their enemies.