Let's rule the salary out of the question and assume that one believes that it's worth the hit.
It may be the case of a Junior demoting to an Internship or a Senior demoting to a Junior/Normal role.
As for the reason to give about the demotion during the recruitment process, let's say that it's because one is not confident that the experience gained before is not on the same level than the equivalent role at dream company because of its competitiveness, or because the previous experience is in a slightly different industry, or both.
Are there higher or lower chances of been accepted?