So I don't understand this explanation. How do they know that the value of u = 1.6 is inside the 95% confidence interval? I know that a z score of 1.6 would be inside it but its just value for u. I'm looking at the section for this problem and the graphs but i don't see why this is true.
Consider what the 95% confidence is about. It is in the statement "$\mu$ is between 1.2 and 2". It is not a statement about the z-score (although z-scores are used in order to find what the confidence interval is).
So the statement is true.