That whole bit about "exploiting a bug" makes zero sense to me. Like, I get that this is the witch dropping a hint to Yvonne that she knows they're in a game, but other than I just don't get what does this explain about the potion.
I interpreted this as changing what kind of entity she is in the game. Like Yvonne usually being a character, but when possessed by a demon she's an enemy or MOB. Thus glitching the system so she has agency that usually isn't allowed if the system only interacts with the "character" Yvonne.