The largest holders of U.S. debt (treasuries) are US govt entities. The last I read the Fed Reserve as #1 (quantitative easing since 2008) and Soc Security was #2. But the Fed Reserve may no longer be #1 because they've been letting their treasury portfolio expire without replacing them as much (quantitative tightening).
#3 would be all of the state pensions if you were to lump them together as one entity. Somewhere after that are foreign governments like China and Japan (usually China is the largest foreign owner of US debt, but every now and then they sell of some and Japan buys some making Japan the largest foreign debt holder).
So their argument is that when the US pays interest on treasury debt, most of the time it's going to entities within the U.S. IMHO that's a bad argument for their excuse to downplay our debt amount (and the rise in interest rates for future debt). But that's what they mean.
You know the FDIC rules put in place after the run on the banks in the Great Depression (last part of the classic movie It's a Wonderful Life)? One of the FDIC rules for decades is that a bank can't call it FDIC insured unless it keeps a portion of it's assets in cash (in case account holders want their money). If they have too low a portion of their assets in cash then the bank can lose it's FDIC insurance or at least will have the premiums go up.
That was slacked off a few years ago (IIRC it was the process Jerome Powell famously referred to as "not-QE") so that a portion of a bank's "cash" holdings can be US treasuries but still be treated as the "cash" requirement for FDIC. End result: treasury demand stayed high (high prices for existing treasuries such as in the TLT or ISTB funds) and when the government makes interest payments it goes to banks to help them stay solvent.