Acharya Prashant clarifies the dual nature of the ego, explaining that it is both the sense of 'I' and a collection of secondhand identities. He defines ego as the statement 'I am X,' where 'X' represents any identity or assumption one holds about themselves, such as being smart, a certain gender, or belonging to a specific religion. These identities constitute the ego, which is fundamentally the self-concept an individual carries.