As I understand it, that's the logical basis for "the universe is almost certainly a simulation". The idea being that a sufficiently advanced society will at some point want to, and have the ability to, simulate a universe (or at least simulate it to the satisfaction of the people being simulated). As technology within that society progresses they will improve the simulated universe to the degree that the simulated universe can, as societies are wont to do, simulate a universe. Also, there's no reason to believe that, if possible, those societies wouldn't want to simulate multiple universes which may, themselves, simulate multiple universes. It's turtles all the way down.

So the logic goes, if there is one physical universe and N nested simulated universes, what are the odds that this one happens to be the physical universe?