First, that little statement in the manual is no different than all the other disclaimers that attempt to limit Harley's responsibilities for their products. Not only do they want to sell you an overpriced accessory seat cover, but they also want to have something to point to when your "leather insert" seat starts to fall apart after the first year and they don't want to pay for a new one. And yes, most of the various CVO seats are about 80% vinyl, and only the inserts are possibly some sort of leather. I say possibly because I'm not convinced it's any sort of real quality leather, more like those cheap "leather" jackets you find in the mall for less than $100 with the laminated material that quickly delaminates.
Keep the seat treated with a good leather and vinyl protectant, and don't worry about it. If you're like many/most, you'll eventually buy a better seat from the aftermarket anyway.
Jerry