Celsius works exactly the same way as banks - they lend the coins out, take interest and pay it out to depositors. They lend a lower proportion of it than banks do typically (ie the ratio is safer) and they pay out more of it in interest. They're less profitable than banks, proportionally, but their depositors get a better rate. One neat wrinkle is that if you take your interest in CEL (and that's where the highest rates are, like the BTC one you quote), then the company has to buy that interest off the market each week, which obviously has a beneficial effect on the CEL price over time (given a fixed total supply).
I know that's the claim, but I don't see it happening. Who's borrowing crypto, and what are they doing with it? The only things you can do with crypto today are speculate or spend it on the dark web. Lending to speculators is a recipe for disaster, because when the speculations fail they cannot pay back the loans. And lending for purchases on the dark web is dodgy at best.
The vast majority of crypto transactions are speculation, because there just aren't that many places to actually use it, even including the black market. When it rises, all schemes are profitable. When it falls, everybody gets wiped out.
Note that legitimate businesses that accept crypto convert it to fiat the instant they receive it, because the volatility of crypto makes it useless as an actual medium of exchange. This fact also renders it questionable that anybody would be borrowing crypto for anything but speculation. Again, a very risky business model. Deposits in bank accounts are insured by the FDIC (in the U.S., and by similar institutions in other countries). Deposits in Celsius are effectively unsecured junk bonds in a company whose revenue source is questionable.
The next tine there's a precipitous drop in the value of BTC, there will be a run on Celsius by depositors wanting to liquidate. Will Celsius have enough liquidity, or will they go bankrupt and take depositors' coins with them? If they're not insured it means that the people whose expertise is risk assessment have calculated that the risk is too high.