Illegal means those built without permits granted by the government. All of those are mostly occupied by Palestinian Israeli Citizens, who, according to the article (written in the usual Israel is mean and extremely cruel to Arabs)built their homes without getting the approval required by the city government of Jerusalem. Until now, they were left alone but Jerusalem has plans to refurbish the "City of David" Park and presumably build homes and apartments surrounding this historic Park.
One can only assume that Israeli's who were or are forced to give up their homes in the West Bank and Gaza, etc. will be relocated inside Israeli sovereign land (regardless of how many Palestinian families have dwelt their treating the land as their own.
My thinking is that the Israeli government has tired of the rotten Peace Process that has only meant violence and death to it's citizens, will forcibly bring them back inside it's recognized boundaries, finish the fence/wall and let the Palestinians do have whatever kind of government and life that they choose for themselves.
Yes, it will probably descend into chaos for a while after the Palestinians elect the most extreme leaders who still chant "Death to Israel, Death to America" but without any other programs save violence, sooner or later a number of courageous leaders will step up to the job.
I certainly hope Israel will unilateraly draw borders. But it's fair to note that there are no recognized boundaries when it comes to Israel, only truce lines. Even the administration refers to the 1949 truce lines as the limit of Israel's legitimate claims.
Built illegally on land they do not own, and without the required building safety code, sanitation, etc. Squatter's shacks.