Using the word OS puts across my point, because when you start packaging your toolchain with glibc and whatever libs you need for your application, you end up with a good part of the Linux file system. Yes there's missing services and so on but they could run if needed.
It's not a virtualization joke, it's more of a "we put flatpak in your flatpak so you can flatpak while you flatpak" recursion joke.