What does hermetic mean in this context?
As per section 3.5.5 of the paper (which goes into further detail):
Definition 3.4
A cryptographic scheme is hermetic with respect to some application if it does not have weaknesses that are exploitable in that application and are not present for the majority of corresponding super cryptographic schemes.
Definition 3.5
A cryptographic scheme is hermetic if it is hermetic with respect to all conceivable applications.
Informally,a cipher or hash function is hermetic if its internal structure cannot be exploited in any application.
I've not seen the term used before myself.
How exactly can you generate a collision by inverting the encryption?
Function 4.4 is invertible. So in order to create an input, we simply need to take the desired output and run the function in reverse.