The new Keynesian IS curve: What determines output?
The solution to your question is price stickiness, or as the author calls it staggered pricing. Let's assume a typical question in the Basic New Kenesian DSGE Model: What happens when a technological shock hits the economy?
More productive firms can produce cheaper but may not be able
to lower their prices due to price rigidities thus demand from the households stays at a lower level. The market clearing condition is supply equals demand and since demand won't increase output in the economy will be constraint (your paper uses determined but this might be the source of confusion) by the demand side. In this scenario one speaks from a negative output gap (Output is depressed in comparison to a world with flexible prices). In a flexible price scenario firms can lower their prices and thus household simultaneously increase demand, as firms want to increase production.
If you want to know more about price stickiness the basic DSGE models often implement the form suggested by: Calvo, Guillermo, “Staggered prices in a utility-maximizing framework,” Journal
of Monetary Economics, 1983, 12 (3), 383–398.