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Hi Colleen,
This may have already been communicated to you offline via email, but I will post the reply here as well just in case.
If you set the common-mode to 1.25 V you would be out of the CM range with a 2.5 V maximum differential. The equation is saying the PGA output requires 200 mV on either side of headroom which means 2.5 V would only barely fit in there.
Using the internally generated mid-supply RLD voltage helps keep you in the correct range. It can also help with common-mode rejection as explained in this app note.
Let me know if you have any further questions!
Best regards,