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The way it works is that if a character is rescued with the effect of Ninian's Grace, then they'll still have it when they're dropped.

So you get two flyers, your dancer, and the character you want to level. Use Ninian's Grace on the fighter, then have them fight. Rescue them, then end turn. Dump them back on the entrance to the colisseum (this is why you have to use flyers), where Ninian's Grace will still be in effect. Dance so that they can go in and fight again - then rescue them with your second flyer.

It becomes a cycle of dropping, dancing, and rescuing. It's very much an exploit, though, and considered cheating by some.