When the lip moves it lets more air in and changes the obliqueness of the shock wave entering. He didn't get into specifics about how that changes the airflow, but my guess is that when you reach higher speed the shockwave entering the inlet gets more oblique, and retracting the lip prevents the incoming shockwave from generating turbulence when it runs into it.
Giving it some more thought, a simplified explanation could be that retracting the inlet lip changes the angle of the shock wave ramp relative to the DSI bump. That would make sense since the cowl (the lip) is an important part of blocking the boundary layer of turbulent air, but I have no clue how making that retractable helps slow the air for the engine at supersonic speeds.
Someone with more knowledge of aerodynamics will have to fill us in.