In layman's terms, this seems to mean that given a certain unedited LLM output, plus complete information about the LLM, they can determine what prompt was used to create the output. Except that in practice this works almost never. Am I understanding correctly?
No, it's about the distribution being injective, not a single sampled response. So you need a lot of outputs of the same prompt, and know the LLM, and then you should in theory be able to reconstruct the original prompt.
No, it says nothing about LLM output being invertible.