As the red writing by the red box says, it is at a fixed DC voltage and there can be no AC voltage there so it acts for AC signals the same as ground or Vdd.
Actually I still don't get it
I am trying to do a circuit analysis on the red box but I am not sure why it is 0 V for Vsg2
Vs=0 V since it is grounded but Vg isnt equal to Vout?
So Vs-Vg = Vsg2 --> Vsg = 0 - Vout???
Saying vsg2 = 0 means 2 things:
1) M3 and IREF can be replaced by a DC voltage source from source to gate of M2.
2) DC voltage sources are shorted for small-signal analysis.
Therefore, vsg2 = 0