I am wondering how Istio is related to Openshift (the Redhat blog post didn't give that much information). Will Istio be integrated into Openshift or simply added as an application to be installed from the catalogue?

OpenShift is based on Kubernetes, and I expect istio to integrate well as a general service to service mesh. Catalog exposure will be useful and something that will get targeted at some point (maybe not right away)

and isn't the entire solution just packaging a proxy developed and open-sourced by Lyft?

Envoy is a big part of the solution, yes. But it isn't the only component. A control plane layer, including an auth component and an adaptable policy enforcement and telemetry collection component, is included as well.

More info is available in the overview doc here: https://istio.io/docs/concepts/what-is-istio/overview.html

Istio adds an automation layer on top of Envoy proxy mesh that allows global cross-cutting policy enforcement. Many of us actively contribute back to Envoy, and there's a lot of exchange of ideas between the two projects on designing the next generation of the config for Envoy.