When he says, "Make a good product", I think he's trying to convey a core and fundamental principle of business that gets obfuscated by all the things you have to do be successful in a startup. That's necessary when teaching beginners.
But he's traditionally had a hard time conveying this seemingly simple concept, and he's always been puzzled by it. You can see it in the previous essays he referenced in this one--the high school one, and how founders over-complicate things.
Though he's talking about this topic as if creating the company is the goal, I'm not sure to what degree he realizes how YC contributes to the effect he's seeing.
Even after getting into YC, I was moderately surprised by how you're still being judged, sometimes explicitly, and other time implicitly. I had batchmates that didn't want to go into office hours, for fear of appearing weak and hence wouldn't get a follow-on recommendation to investors from a YC partner.
Of course, I think PG would say that's stupid. If you go into office hours and fix your problem, then by virtue of being a better startup, you'll be a more attractive investment. Trying to do it the other way is putting the cart before the horse.
That said, the effect is real. Like the Observer Effect in quantum mechanics, by virtue of being a conduit to further funding, founders will turn their attention to the tests. Because if you don't, it's easy to be written off and not be able to get the help that you need.