When people talk about house edges, what they mean is the average amount a player would lose if they made the bet a lot of times. So let's say we flip a coin, and if you get it right you double your money -- otherwise you lose it. We'd say that has a 0 house edge, because if you played a lot of times the amount of wins would be pretty much the same as the amount loses.

But all bets in bustabit are slightly worse than that. So if you want to x2 your money, you'll only win 49.5% of the time. So if you played a lot of games, the amount you'd lose is 1% of the amount you bet.

So to answer your question, the 1% edge is taken because the distribution of busts was predetermined from a distribution such that that property holds. i.e. It only goes to >= 10x an average of 9.9% of the time. But if there was no edge at all, it'd be 10% of the time.