That's an opinion from the US copyright office, not a law or a decision made in court. I think it remains to be seen to what extent using generative AI affects the practical application of copyright in larger projects: the office holds that the human-contributed parts still qualify for copyright, and I think there are a variety of possible interpretations and arguments that could effectively allow a largely AI-generated codebase to still be protected by copyright, even if technically big sections of it are not (in a similar manner as e.g. maps are protected, even if the underlying facts are not).

(I would also argue whether it matters in practice the other way: if something was AI generated, it is in principle cheap for someone else to generate it separately anyway: if you're wanting to copy AI generated code then there's probably some part of the ideas in it that are valuable beyond what the AI can output on its own)

(Also, this uncertainty does still mean that it's probably prudent to record which parts of your software are generated and which are not: it's a conceivable outcome that some company winds up in court and manages to argue that the human-generated parts are still covered under copyright, but are unable to point to which parts those are and therefore lose it entirely)

Yes, that's exactly what they were talking about. It says right in that page that sufficient changes can allow them to copyright the work, and it also says that their decision can be challenged.

To be clear, the Copyright Office is providing guidance and a particular (respected) interpretation of the law. Their opinions do influence courts, but they do not constitute law themselves.