Do they realize that they just made the MacBook most pointless product in the Mac line?
Probably? Since they totally could have killed it and did not, I'm assuming they have big plans for the next rev.
My suspicion is that the MacBook was originally meant to replace the Air, but they decided instead to make it the spiritual successor to the nTB Pro going forward (and possibly the 13" TB as well). The nTB Pro and prior smaller pro models have always focused on portability over power.
Ignoring parts in the case and build quality, the MB is still around 25" smaller and 25" lighter than the Air. I think they will double down on that, and make it a laptop for people who need true all-day battery life and portability and are willing to compromise on screen size and power to get there - target people like writers, jet-setters, and corporate executives.