He's talking about visceral fat versus subcutaneous fat.
Visceral fat surrounds the organs. Since most of your organs are around your stomach area, then that will be concentrated mostly in that area. If you have enough of it, it'll push out the stomach lining and cause a "beer gut".
Subcutaneous fat is just under the skin (not "wrapped around the muscle"). It can be more distributed around the body, but it mostly focuses around the abdomen, hips, and legs.
Both types of fat are accumulated and removed in the same manner. You get less when in a caloric deficit and you get more when you are in a caloric surplus.
What determines where fat is stored is primarily genetics, hormone profile, and diet to a lesser extent.
Men tend to have more visceral fat than women. Men also tend to have significantly more muscle mass than women. So that alone should tell you that there is no correlation between fat accumulation and muscle mass.
People on PEDs, particularly anabolic steroids, can have much higher amounts of visceral fat despite having extremely low amounts of subcutaneous fat.
Diet has also been linked to accumulation of visceral fat. Alcohol for example has been linked to increase in visceral fat particularly in the liver. Diets high in fat and sugar (particularly fructose) have very loosely been linked to higher visceral fat uptake, although this link is harder to establish as people who eat those diets also typically have higher BF% in general.
The reason there may be a confusion is because of a classic case of correlation vs causation. People who exercise a lot, bodybuilders especially, have a lower overall bodyfat percentage in total. They're going to have lower amounts of visceral fat. They also have lower amounts of subcutaneous fat. They also typically eat foods that are less processed, have less sugar, less fat, and more protein. They also don't drink alcohol as much.
In comparison, people who don't train at all, typically have both high amounts of both visceral and subcutaneous fat. They typically eat higher processed foods that are higher in both fat and sugar while being lower in protein. They are typically heavier drinkers.