score:3
I am also unable to find anything on the internet. I suspect that the refusal was based on a misreading or mischaracterization of Executive Order 13780, the more recent of the so-called "travel ban" executive orders (it has also been modified by subsequent presidential proclamations).
One of the provisions of the travel ban was to suspend the US refugee admission program, which applies to people who seek refugee status in the US. It does not apply to those who have settled elsewhere as refugees and wish to visit the US as nonimmigrants. It would nonetheless be easy for someone to characterize the order as "suspending the entry of refugees into the US" and to conclude that those with refugee travel documents are therefore ineligible to visit the US.
I would suggest approaching it on several fronts:
Seek an explanation of the legal basis for the cited policy.
Each US citizen child and grandchild can ask his or her senators and congressional representative to intervene on her behalf. Members of Congress have offices devoted to this sort of intervention. I would start by picking one child and one senator of that child. If that does not yield fruit, try that child's other senator and representative. If they are also no help, try all senators and representatives of all children and grandchildren.
If these attempts at administrative remedies through the consulate and members of Congress do not succeed, consider whether to sue in the courts. You can ask a lawyer in private practice about this, in which case you should probably approach an experienced immigration lawyer. You can also try approaching rights organizations such as the American Civil Liberties Union, the National Network for Immigrant and Refugee Rights, and the International Refugee Assistance Project.
That the refusal was based solely on the presentation of a refugee travel document may violate the United States' obligations under international law (the US did not adopt the 1951 convention, but it did adopt the 1967 protocol, which incorporates most of the convention). Your grandmother should consider whether to submit a complaint to the German Ministry of Foreign Affairs, which may be able to bring diplomatic pressure on the US government to consider her application on its merits. Her initial point of contact for this would probably be the office that issues the document.
This would make a good news story ("grandmother, 30-year resident of Germany, 5-time visitor to the US, denied US visa"). Find some stories in the US news media about the travel ban or other immigration issues, and write to the reporters of those stories. To decide on the order in which you want to approach them, you may want to consider the prominence of the reporter's employers. If one of them decides to cover your grandmother's story, there is a chance that her visa will be issued quickly.