It is sometimes said that a method should have only one return statement (i.e. one exit point) and that to code using more than one return per method is bad practice. It is claimed to be a risk to readability or a source of error. Sometimes this is even given the title of the “single exit point law”.
A function can have more than one return statement, but only ever run one based on a condition.
You can have multiple return statements and it should not matter, if you are returning the same variable. However if you have multiple variables in your function and you return then differently depending on the code flow the compiler cannot perform such optimisation.
More than one return statement may appear in a function, but only one will ever be executed by any given function call. ( All returns other than the last need to be controlled by logic such as "if" blocks. )
It does not give a compilation error because it is allowed by the Java Language Specification. However, it gives a warning message because including a return statement in the finally block is usually a bad idea.
What happens in your example is the following. The return statement in the try block is executed. However, the finally block must always be executed so it is executed after the catch block finishes. The return statement occurring there overwrites the result of the previous return statement, and so the method returns the second result.
Similarly a finally block usually should not throw an exception. That's why the warning says that the finally block should complete normally, that is, without return or throwing an exception.
This is described in the Java Language Specification:
§14.17
Abrupt completion of a
finallyclause can disrupt the transfer of control initiated by areturnstatement.
§14.20.2
If execution of the
tryblock completes normally, then thefinallyblock is executed, and then there is a choice:
- If the
 finallyblock completes normally, then thetrystatement completes normally.- If the
 finallyblock completes abruptly for reason S, then thetrystatement completes abruptly for reason S.If execution of the
tryblock completes abruptly for any other reason R, then thefinallyblock is executed, and then there is a choice:
- If the
 finallyblock completes normally, then thetrystatement completes abruptly for reason R.- If the
 finallyblock completes abruptly for reason S, then thetrystatement completes abruptly for reason S (and reason R is discarded).
There are no compile time error since only 1 and exactly 1 of return statement will actually return the control back to calling code. 
As explained @Hoopje, return within try or catch will execute first, their respective return statement will also execute. But just before returning the control back to calling code, it will execute the finally block. Now, this block also returns something, so this return overrides the previous one.
It's essentially the same as this:
public boolean someMethod(){
        if(1 == 1){
            return true;
        }
        return false;
}
It will not give a compilation error, although it will give a warning. The compiler will only give an error when there's a chance of no return statement being executed.
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