In the release notes it says the engine can now create GL context on headless machines how is this done?

In the 4.14 release notes it says “New: Added “offscreen” video driver to SDL so the engine can now create GL context on headless machines not running any display servers (EGL is enough).”

Does this mean that one could have headless rendering on a headless linux machine for example? How would one enable this?

I think this is meant more for building and packaging the project, so you can run it on a build server say. This would get you somewhere probably A new, community-hosted Unreal Engine Wiki - Announcements - Unreal Engine Forums

You can simply unset DISPLAY variable. If your driver support creating a EGL context, the engine should start using the offscreen context.