Acharya Prashant explains the statement 'the observer is the observed' by highlighting the intrinsic link between the subject and the object. He argues that we often mistakenly assign the status of 'truth' to the world, assuming it to be independent of ourselves. However, truth is defined as that which is independent of time, space, and processes. Since the world changes as the observer changes, the world cannot be the ultimate truth; rather, the observed world is a reflection of the observer. When one observes both the object and the self simultaneously, one exceeds both and moves toward a deeper understanding.