I think they define Pallene as a true subset to Lua in that the Pallene compiler can emit a pure Lua version (which strips all the types), and will produce the same results when run.
It's also not just another Lua-like language, in that it is designed to deeply share the Lua VM, and that Lua and Pallene code can call each other easily and fast. The description "Sister language" is trying to impart that there is more going on with Pallene than just creating another new language that kind of resembles Lua.