I haven't seen anyone fail, but I've heard about it happening at our school in the past. I guess you could say it's your chance to fail more than it's your chance to pass, in a way. People have failed for freezing and not being able to be "brought back" mentally. People have failed by giving up, not taking it seriously, and/or other disrespectful acts. In my CI's almost 30 years running a dojo, he's had a handful of people fail kyu tests. Testing isn't some elaborate thing; it's basically a regular class, only the intensity is much higher and the people testing (other students not testing are there too, as it's during regular class time) are put a step in front of everyone else, and they're always paired up with black belts who'll push them harder than the norm. Much harder. Kyu testing is usually done before black belts class, so as the student advances, they stay for black belts class to spar with them too. The higher the kyu student gets, the longer they stay in that class.
I guess you can say it's more of a demonstration that an actual test, but it's a demonstration where you're pushed pretty hard and pushed outside your comfort zone. Give it all you've got, don't panic and don't do anything disrespectful, and you're good.