There's a lot of messy use of words in this case.
Apple can't circumvent its own encryption (not that we know, anyway, and that hasn't been claimed). The FBI knows that the govt have tools capable of breaking the encryption, with time. They essentially scan for the correct key.
Apple has security in addition to the encryption though: in this case they have two: one is a timing system that limits the guessing rate, and the other is a 'self-destruct' system that destroys the data if too many guesses fail. These are the systems that the FBI want compromised. They would then set their normal password cracking toolchain to work.
It's disturbing, because the govt are definitely not the only ones with such a toolchain. And when you increase the number of devices that can be scanned (by producing and signing a version of iOS without these protections), you increase the ability to crack at least one. In general 'the bad guys' have it easier, because they are rarely interested in cracking a specific phone, they are interested in cracking some of a larger set of them.
The aim is to have these kind of security features on the silicon, so we don't even trust them to keep the extra security in place. But that's not the case here.