What does "withdraw $BTC on Ethereum" mean? Are they tokens that they claim to have a 1-to-1 peg with $BTC?

This probably means wBTC (wrapped BTC) which is a ERC20 token on the Ethereum Network. They seem to have a more-or-less 1:1 peg to BTC and they seem to be transparent about their holdings (https://wbtc.network/dashboard/audit) - there's a list of addresses that's verifiable on-chain. Disclaimer: I've never used them and the info above comes after 3 minutes of skimming their website ;)

There’s wrapped BTC which is an eth network token “backed” by BTC.

[1] https://wbtc.network/

Why the scare quotes? It's all verifiably backed on chain.

Fair question, the quotes are from my general unease with claims of being backed and audited in the crypto space — see Tether — means for now with crypto I assume these are marketing claims until there’s more meaningful regulation in multiple countries.

Yep. Some of these are held by custodians and others in smart contracts, depending on the type of "wrapper"

They can exchange Ethereum for the equivalent amount of BTC, but good luck turning that BTC into cash

While this is also possible, this is not what the statement was referring to

there are actually more than a dozen ways to cash out that I can immediately think of but nobody is cashing out if you look at the on-chain metrics and CEX/DEX data