LLMs are statistical models by construction, so depending on how liberal you want to be with terminology, "interpolate" is not so bad. Might make a statistician upset.
But people aren’t giving a (less literal) definition of what they mean by “interpolate” that relies on the internal mechanisms of these models, just a vague metaphor, which, as this vague metaphor, there’s nothing it uses about LLMs that makes the question “do LLMs just interpolate” less of a type error than “do people just interpolate”.
They’re also capable of performing arbitrary computation when ran in a loop - so they can be made to quite literally interpolate whatever. Philosophers are quite upset, too.
And I don’t think it’s a good metaphor.