So all manager positions have been eliminated. People that were formerly managers have the option of staying on in some nebulous capacity. For those former managers that do not want to work at a company in a nebulous capacity, they are offering a severance package. This severance package seems more like a legal maneuver to force resignations to avoid having hundreds of former managers suddenly file unemployment claims, wrongful termination suits, etc. against Zappos.
I find the language of the memo and the motivations behind it execrable. I do not believe there is anything inherently wrong with flat organizational structures and there's perhaps even some justification for using novel terminology to describe them. Valve's employee handbook is a great example of a flat org description done right. Eventually maybe Zappos will end up with a similar document. It's maybe a little harsh to judge them based on a rambling, incoherent, and cultish internal memo, but I know that I'm not inclined to work for Lead Link Grand Wizard Hsieh if this is the way he communicates.