Earlier quoted context omitted.
>[...] I point out to them that Claude Shannon proved that generalized compression algorithms can't exist [...] What proof are you talking about?
They just mean that there is no general way to compress an arbitrary M-bit string to an N-bit string for M > N, and yet compression algorithms exist. The point is that the input to your compression is not an arbitrary M-bit string, but some very structured thing which could have a smaller representation. Similarly, when encountering what appears to be an NP-hard problem in the wild, you might still be able to find an…
(And conversely, I see no reason to believe that "Claude Shannon proved that generalized compression algorithms can't exist". I assume that result predates Shannon.)