"Genetically engineering" refers to the option in the future where you can take any two sims (as long as at least one of them is playable) and engineer a kid. I honestly think it's fine to do it in order to get a mortal/spouse too, so I'll clarify that rule.
I don't care how you get spouses, as long as you aren't aging people down. The rule is so that you just can't clone someone and say "ah yes, I have an heir."
EDIT: The clarified rules, under "Household Matters":
- Immortals must result from natural pregnancies where both parents are living in the Dynasty house. As such, this child cannot be adopted, made through the Clone Voucher LTR (GEN), made through cloning a sim with the Science skill (UL), born out of a "Genetic Merger" with the Door of Life and Death (Grim's Ghastly Manor), or Genetically Engineered (ITF).
- However, non-immortals can be adopted, cloned, made through a Genetic Merger, or engineered.
I tried to cover all bases with the rule too. Notify me of any situation that I missed.
(As for alien abduction pregnancies, a separate rule covers that...though I'm likely going to revise it to allow it under certain conditions. PlantSims are covered by another rule too. The entire Household Matters section is a formatting nightmare anyways. Do expect some revisions in the future!)