My question is: under what circumstances would an MRO request another test, and one under observation?
It is spelled out in the linked regulation. Did you not read it?
(b) As an employer, if the MRO informs you that a negative test was dilute, take the following action:

(1) If the MRO directs you to conduct a recollection under direct observation (i.e., because the creatinine concentration of the specimen was equal to or greater than 2mg/dL, but less than or equal to 5 mg/dL (see §40.155(c)), you must do so immediately.

(2) Otherwise (i.e., if the creatinine concentration of the dilute specimen is greater than 5 mg/dL), you may, but are not required to, direct the employee to take another test immediately.

(i) Such recollections must not be collected under direct observation, unless there is another basis for use of direct observation (see §40.67 (b) and (c)).
So, if the MRO had not directed you an immediate resubmit under D/O (due to the creatinine concentration being between 2 - 5 mg/dL) then you have nothing to worry about there.

If a test comes up neg/dilute for the MRO, what power to they have to demand another test? And to whom do they report?
This is also stated in the regs. Read and learn:
DOT Rule 49 CFR Part 40 Section 40.155 | Department of Transportation