Thermodynamic model of inclusion process of alpha-cyclodextrin
This is a variation on the application of Hess's Law (or looks like it, not having read the article). The idea is that the individual steps add up to the complete reaction 

cyclodextrin with included water + hydrated guest $\rightarrow$ hydrated cyclodextrin with included guest

According to Hess's Law you can break up this process into a sum of intermediate steps. One of those steps is dehydrating the guest molecules and shoving the waters into the bulk solvent. That last step is what is meant by collapse of the cavity  with redistribution of the water molecules..