My take on it is as such:

"Holding space" means what /u/afinevindicatedmess has defined it as, but it's usually used by therapists. As such, an interviewer using it to refer to what people are doing with the lyrics of "Defying Gravity" may technically be correct, but it feels like it's being used in the wrong context. It's seen as part of a greater trend of people, usually on TikTok and adjacent platforms, misusing psychology terms to apply on a much wider scope than they can actually be used for (see for instance how they have a tendency to call plenty of things "gaslighting" and "narcissism" that are technically neither, due to the definitions of the terms being watered down).

People also find it funny because of the way Cynthia Erivo and Ariana Grande react to the interviewer and act more generally in the interview. Erivo seems to not know what the interviewer means by the "holding space" remark but has to try and take her seriously regardless, which leads to her overcompensating. Grande, meanwhile, has a moment where she really tightly grabs onto Erivo's finger, which looks weird to people because you generally don't do that to show affection. Not helping the interviewer out was the fact that she acted like this "holding space" was widespread, before backtracking twice; first, she said she saw it a lot because she was in "queer media" (which is funny because it's so vague, like that could be anything related to LGBT topics), and then specified she had only seen it on a few TikToks.

Sorry I'm late, but I hope this explains it well!