As you suggest, we do need "value traders". In particular we need traders who buy and sell stocks in reaction to news. These traders don't have to be necessarily the active fund managers the article is talking about. They could be prop traders working for their own account or for a bank, broker or hedge fund.

"News" is any new information that affect the expected present value of a company cashflow. It could be a new product, a possible merge or macroeconomic indicator.

If you invest in an index fund, you're basically following the trades of those value traders. You won't make as much money as them, because often you'll be buying "good" stocks after they've already increased in price, i.e., by the time passive fund managers buy the "good" stock, the price will often have already incorporated the value of the good news. The same holds for the "bad" stocks.