This reminds me strongly of Sturgeon's Law:
90% of everything is crud.
The "law" was coined by scifi author and critic Theodore Sturgeon as a response to people being dismissive of scifi because "90% of it is crud". He realized that the same was true of any genre, but that (say) cozy mystery fans knew how to spot works in the cozy mystery genre that were good (for any definition of good), but would be choosing scifi works more-or-less at random. Without enough grounding in the genre to know what to look for (or what to look out for), "90% of scifi is crud" but "most cozy mysteries are good" because the speaker knows how to spot the good ones and avoid the bad.
Quality can help determine popularity. But, so can flukes, fads, historical inertia, and any number of other factors. Not so long ago, if you published a book with a cover that vaguely implied werewolves and teenage-angst-filled love triangles, it'd sell passably well even if it wasn't Great Literature: werewolf romance novels were a fad, and some of them got high enough on the charts to qualify as popular.
And, of course, quality isn't a guarantee of popularity! Again, due to flukes, fads, etc., a superb work might not get the recognition and popularity it deserves - consider Vincent van Gogh, who famously died in poverty, unrecognized as a great artist until years after his death. How many other van Goghs are out there, their work never rediscovered?
To an extent, there's also the matter of taste. What I find terrible you might think is a Great Work of Literature.
Putting all of that together, the larger quote makes sense:
You know how popular novels are terrible? It’s not because the masses don’t appreciate quality. It’s because there’s a Great Square of Novels, and the only novels you ever hear about are the ones in the Acceptable Triangle, which are either popular or good.
The books you've heard of are in the Acceptable Triangle - they're popular and/or they're good. Most novels are terrible, though, so a lot of terrible novels become popular for other reasons. Relatively few novels are Great Works, and some of those get lost in the sea of mediocrity. Therefore, most popular novels are terrible not because the masses don't appreciate quality but because most works are terrible to start with.