I did a little more digging after posting this and understand it could be to do with pension applications?
Do you mean James Dice gave an address that came up with the Donnell family living at that location and not him?
Pension applicants had to prove age. James was born before civil registration of births began in Ireland. He was seeking documentary proof of his existence and age at the time of 1851 census.
Another search request by him in Feb. 1917 was for John & Mary Crosbie who were in Ballingly parish. There was also a search in Ballymitty parish but I couldn't see the form for that.
If you look at the 2nd one found by Heywood (Reply #3), you'll see 3 different surnames as head of households (Dyce, Murphy, Doyle) in 3 parishes. Notes by official on that form, submitted in May 1917:
"Not found in any family a b or c. See over for report.
The claimant should endeavour to recollect where he resided in 1851 as this Dept. has already made previous searches on his behalf."
James would have been around 4 years old (or thought he was) in 1851, so it's not surprising he didn't know where he was on census night. I get the feeling that he moved around in childhood; possibly due to eviction/death of a parent/parent moving to find work or charity. Names of various heads of households which James supplied may have been relatives or people with whom he lodged or for whom his parent worked. The priest, Rev. O'Brien, may have been trying to help by asking James questions about people and places he remembered.
Although the proportion of people making pension applications was high in Ireland, not every elderly person was eligible. Not all those who intended to apply for a pension needed to request a census search - some had other means of proving age, e.g. entry in baptism register.