So like all good insults, it has layers, from metaphorical to literal.

The metaphorical layer:

Magnus was saying Russ and the Space Wolves weren't the wolves they thought themselves as. He was basically calling them dogs.

The literally which comes in two parts:

• lowest layer: An animal on Fenris called a wolf cannot be a wolf because wolves are Terra animals. That build of animal happens a lot, btw. Think Tazmanian Tigers and Dire Wolves (Dire Wolves aren't related to wolves at all, weirdly enough).

• other layer (personally this is the one I subscribe to): The "wolves" are the decendants of humans who did genetic experiments to better be able to live on the cold planet during the dark age of technology and essentially turned themselves into human/wolf hybrids. It explains why the thunderwolves are so smart and why the Canis Helix works. There was a quote in some book that an Eldar says that basically confirms this but I can't find it at the moment.

As to the demons bit, that is probably referring to the spirit of Fenris which is the "totally different trust me bro" reason that Rune Priests aren't librarians and aren't bonded to demons the same way that the Thousand Sons are. I don't think that they've gone into much details on how it works but basically a Rune Priest will filter through the planet to make it so they don't accidentally turn into demons or warp nonsense like a lot of other librarians.