The behaviour observed is not really part of bash; rather, it is part of the behaviour of the readline library. It doesn't happen if you simply use echo (which is a bash builtin) to output enough text to force an automatic line wrap, nor does it happen if bash produces an error message which is wider than the console. (Try, for example, the command . with an argument of more then 80 characters not corresponding to any existing file.)
So it's not an official "soft-wrap sequence", nor is it part of any standard. Rather, it's a pragmatic solution to one of the many irritating problems related to console display management.
There is an ambiguity in terminal implementation of line wrapping:
The terminal wraps after a character is inserted at the rightmost position.
The terminal wraps just before the next character is sent.
As a result, it is not possible to reliably send a newline after the last column position. If the terminal had already wrapped (option 1 above), then the newline will create an extra blank line. Otherwise (option 2), the following newline will be "eaten".
These days, almost all terminals follow some variant of option 2, which was the behaviour of the DEC VT-100 terminal. In the vocabulary of the terminfo terminal description database, this is called xenl: the "eat-newline-glitch".
There are actually two possible subvariants of option 2. In the one actually implemented by the VT-100 (and xterm), the cursor ends up in an anomalous state at the end of the line; effectively, it is one character position off the screen, so you can still backspace the cursor in the same line. Other historic terminals "ate" the newline, but positioned the cursor at the beginning of the next line anyway, so that a backspace would not be possible. (Unless the terminal has the bw capability.)
This creates a problem for programs which need to accurately keep track of the cursor position, even for apparently simple applications like echoing input. (Obviously, the easiest way to echo input is to let the terminal do that itself, but that precludes being able to implement extra control characters like tab completion.) Suppose the user has entered text right up to the right margin, and then types the backspace character to delete the last character typed. Normally, you could implement a backspace-delete by outputting a cub1 (move left 1) code and then an el (clear to end of line). (It's more complicated if the deletion is in the middle of a line, but the principle is the same.)
However, if the cursor could possibly be at the beginning of the next line, this won't work. If you knew the cursor was at the beginning of the next, you could move up and then to the right before doing the el, but that wouldn't work if the cursor was still on the same line.
Historically, what was considered "correct" was to force the cursor to the next line with a hard return. (Following quote is taken from the file terminfo.src found in the ncurses distribution. I don't know who wrote it or when):
# Note that the <xenl> glitch in vt100 is not quite the same as on the Concept,
# since the cursor is left in a different position while in the
# weird state (concept at beginning of next line, vt100 at end
# of this line) so all versions of vi before 3.7 don't handle
# <xenl> right on vt100. The correct way to handle <xenl> is when
# you output the char in column 80, immediately output CR LF
# and then assume you are in column 1 of the next line. If <xenl>
# is on, am should be on too.
But there is another way to handle the issue which doesn't require you to even know whether the terminal has the xenl "glitch" or not: output a space character, after which the terminal will definitely have line-wrapped, and then return to the leftmost column.
As it turns out, this trick has another benefit if the terminal emulator is xterm (and probably other such emulators), which allows you to select a "word" by double-clicking on it. If the automatic line wrap happens in the middle of a word, it would be ideal if you could still select the entire word even though it is split over two lines. If you follow the suggestion in the terminfo file above, then xterm will (quite reasonably) treat the split word as two words, because they have an explicit newline between them. But if you let the terminal wrap automatically, xterm treats the result as a single word. (It does this despite the output of the space character, presumably because the space character was overwritten.)
In short, the SPCR sequence is not in any way a standardized feature of the VT100 terminal. Rather, it is a pragmatic response to a specific feature of terminal descriptions combined with the observed behaviour of a specific (and common) terminal emulator. Variants of this code can be found in a variety of codebases, and although as far as I know it is not part of any textbook or formal documentation, it is certainly part of terminal-handling folkcraft [note 2].
In the case of readline, you'll find a comment in the code which is much more telegraphic than this answer: [note 1]
/* If we're at the right edge of a terminal that supports xn, we're
ready to wrap around, so do so. This fixes problems with knowing
the exact cursor position and cut-and-paste with certain terminal
emulators. In this calculation, TEMP is the physical screen
position of the cursor. */
(xn is the short form of xenl.)
Notes
The comment is at line 1326 of display.c in the current view of the git repository as I type this answer. In future versions it may be at a different line number, and the provided link will therefore not work. If you notice that it has changed, please feel free to correct the link.
In the original version of this answer, I described this procedure as "part of terminal handling folklore", in which I used the word "folklore" to describe knowledge passed down from programmer to programmer rather than being part of the canon of academic texts and international standards. While "folklore" is often used with a negative connotation, I use it without such prejudice. "lore" (according to wiktionary) refers to "all the facts and traditions about a particular subject that have been accumulated over time through education or experience", and is derived from an Old Germanic word meaning "teach". Folklore is therefore the accumulated education and experience of the "folk", as opposed to the establishment: in Eric S. Raymond's analogy of the Cathedral and the Bazaar, folklore is the knowledge base of the Bazaar.
This usage raised the eyebrows of at least one highly-skilled practitioner, who suggested the use of the word "esoteric" to describe this bit of information about terminal-handling. "Esoteric" (again according to wiktionary) applies to information "intended for or likely to be understood by only a small number of people with a specialized knowledge or interest, or an enlightened inner circle", being derived from the Greek ἐσωτερικός, "inner circle". (In other words, the knowledge of the Cathedral.)
While the semantic discussion is, at least, amusing, I changed the text by using the hopefully less emotionally-charged word "folkcraft".
