There are multiple kinds of interpretation. For instance, there is interpretation of symbols in a domain like Physics: μ (in elementary optics) is “interpreted” as the refraction index of a substance. We use a more or less analogous notion of “interpretation” in Chemistry, Mathematics and so on. In logic, we speak of “interpretation of variables” like p, q, etc. Here, it means that the letters stand-in for arbitrary sentences with truth-values.
Then, we have linguistic interpretation: here, it has to do with meaning. One of the best developed ideas is that ‘meaning’ of a sentence requires mapping them to a domain of objects. The conditions under which a sentence is true gives us the meaning of the sentence, say some, where ’truth’ involves mapping. This notion of interpretation, where understanding requires linguistic interpretation, which gives us the meaning of the sentence. In Samskara, UR is talking about the linguistic interpretation of the erotic passages. And the question is directed at the admonition by the Acharya (as I remember it).
Quite separate from this is the multiple notion(s) of “symbolic interpretation”: one sees as a “symbol” whatever one feels like. They could be stories, actions, texts, advertisements, dance, meditation, voting, religion, culture… For instance, Courtright believes he is giving a “Freudian interpretation” of the story of Ganesha which means that he is mapping the story of Ganesha to a particular linguistic interpretation of the texts of Freud. Kripal, for instance, “interprets” the sucking of the toes (by the Tantriks) as a symbol for oral sex. The author you cited is interpreting the word “apsaras” as “phenomenon of the mind” and is thus interpreting these creatures “symbolically”. And so on.
My discussion about “interpretation” pertains to the last kind: that is, it is about “symbolic interpretation”.