algorithm gcd(x,y)
if y = 0
then return(x)
else return(gcd(y,x mod y))
we're given this as the euclidean algorithm.

I get everything up to "so in both cases the first argument decreases by..." But Im really confused about how we get the 2n.
If $x$ has $n$ bits, $\left\lfloor\frac{x}2\right\rfloor$ has $n-1$ bits, so decreasing $x$ by a factor of at least $2$ reduces the number of bits by at least $1$. After at most $n$ such reductions you reach $0$ bits, meaning that the first argument is $0$, and the algorithm terminates. It takes $2$ calls to ensure a reduction by a factor of at least $2$, so at worst it takes $2n$ calls to get $n$ reductions by a factor of at least $2$ and hence a $0$ first argument.