Does this mean all functions that can be described by quaternions are non-linear, or does it mean that quaternions can describe some linear functions such as the ones associated with rotations in 3D space but there are linear function they cannot describe?
Matrices and quaternions take different approaches to describing rotations: a matrix sees a rotation as a linear function, and quaternions see rotations as a group (confusingly represented with matrices, this field is called representation theory if you want to know more).
So the answer to your question: there are linear functions that quaternions cannot describe. And quaternions can only describe a very specific class of linear functions (with some rather complicated maths behind them).