I read it as meaning it would have the iPhone 8 design/ shell with a newer chipset (presumably the newest A13 as an A12 would scarcely be worth it with the 8 already having the A11).
As things stand this year, Apple will be discontinuing the 7 and making the 8 their entry level product - they could still offer it in 8 and 8 Plus forms of course.
But the next tier up would be solely occupied by the Xr - a 6.1" device. Just one size. The Xs and Xs Max would be officially discontinued as the X was before it to make way for the new phones.
Therefore there's a gap in the market where the iPhone 8 currently sits - a 64Gb iPhone that - in the UK - costs £599.
Granted, the Xr was designed to sit between the 8 and 8 Plus in price and a £100 price reduction would see it cost £649 in October, and then potentially cost £549 in October 2020.
But are Apple aware of people who would prefer a smaller phone than the Xr?
If, as you say, Apple belatedly create an iPhone 8s that takes the 8 body shell and puts in new hardware things could be a bit confusing in terms of marketing. They wouldn't need the '8s plus' because they already have an Xr but this '8s' may have to accommodate 3D Touch which is
allegedly being phased out.
This is where a more through redesign could come in. We'd therefore see an Xe powered by the same A12 CPU using a screen size that's roughly the same as the 8 (4.7" 326ppi 1334x750) but with smaller bezels to make it more compact. Bring it out in time for the October A13 phone releases and the Xr will then have a smaller companion just in time for the price reduction to the middle tier.
Perhaps there might be room for FaceID, it could also be thicker to house a bigger battery and cameras. But people looking for a 'new' iPhone would be interested too just because it doesn't look like a 7 or 8.
The iPod touch could get a redesign to match as well.
I think WWDC is the last proper chance for Apple to release an A12 powered 4" SE sized device this year. After that they may as well launch an A13 powered Xe in October but that might thottle unit sales if they can't ramp up manufacture like they did with the 7 and 8.
If Apple are intending to launch an A12 powered device in October alongside the A13 iPhones but that could make it seem less of a sister product and more of a budget option again as far as I'd be concerned.