What limits the realism of a surface? He mentioned that one would never see the "fly-away" surface, but I actually do have a more fuzzy type of pillow with extremely small fluff. While the generated image looks almost like an improperly blurred hard surface, my pillow seems more soft.
I think here he was talking about how fly-aways could not be generated using a surface model for cloth. This is because when you render as a surface, you take the weaving pattern of the cloth and determine the surface normals. However, this is limited, for example, fly-aways do not have a regular pattern that you could use to calculate these.
A surface model is generally smooth, with some details/bumps. The fly-aways are hard to model as a surface, since then the surface model would have to jut out at many random positions. Surface models are good for rendering the overall shape, but not for the small details. Microfacets wouldn't work, since they're like little bumps, but the fly-aways are like tubes. I imagine the fly-aways could be modeled as sparse hair/fur though.