They are changing the encoder in such a way that the resulting PNG does not decode exactly, but instead approximates the original image. This turns it into a lossy process. It doesn't really matter if this process happens before or after the PNG encoding step (in fact, from how they describe it, it sounds like it it is integrated into the PNG encoding process, not simply a pre-processor); the combined process of any filtering and PNG encoding is lossy, as in it does not preserve all information necessary to produce a bit-identical output.