Four weeks later, I can answer my own post:
Terminal (VT100ß) "Application mode" is something different - forget this term.
What you want is a "raw" (character at a time) tty connection, vs a "cooked" (line at a time) connection. Read the Wikipedia articles on Terminal mode and Line discipline, and this article: BBS FAQ, the whole section on how "lightbars" in BBS work. There you'll learn about how Telnet can switch the TTY "line discipline" buffer into "character mode" (just pass through, immediately). In character mode, your terminal, via Telnet, sends all key strokes as they happen, not waiting for Enter or EOT. Telnet is configured via the IAC marker mechanism, it requires to handle SGA and ECHO settings to tell Telnet to start character mode.