Well, the problem is that there are no nontrivial diffeomorphism-invariant local observables for general relativity. C.G. Torre's "Gravitational Observables and Local Symmetries" (arXiv:gr-qc/9306030) proved this for the vacuum, and adding matter doesn't help things.
We can try to construct a class of observables by considering integrals over spacetime of scalar functions, but this family of observables do not posses a local interpretation. The scalar must commute with the generators of the diffeomorphism constraints. For a given scalar field $\phi(x)$, the diffeomorphism group acts as $\partial_{\mu}\phi(x)$ which vanishes if and only if $\phi(x)=\phi_{0}$ is a constant. Torre has shown general relativistic observables must include an infinite number of derivatives and hence are very nonlocal.
Quantum theory doesn't handle nonlocal obserables very well, and I believe this is what the OP's quote references: since there are Dirac observables for General Relativity, it doesn't play into quantum theory very well.
Loop Quantum Gravity uses holonomies to construct its observables, and holonomies are nonlocal. String theory has a similar implicit use of nonlocality.