Hector Martin tooted about this, saying it's possible this could be backported to M2 systems too.
So the M3 can now drive 2 external displays on laptops with the lid closed... except that's not new! Apple introduced this capability into the M2 already. It's why the M2 *Mac Mini* supports two displays over Type C/Thunderbolt, while the original M1 Mac Mini does not, and requires one display...
social.treehouse.systems
eDP = embedded DisplayPort. M1/M2/M3 all have an eDP port dedicated to driving internal displays, and on the Mac Mini, it's connected to a DP-to-HDMI translator chip to provide the HDMI output.
So, in M1, the internal display refresh engine is routed only to the eDP port, but in M2 and M3, it can also connect to the crossbar which serves display data to Type C ports.