Sagan says that humans are "star stuff" because every living body is made of several elements that were forged in ancient stars. Apart from hydrogen and lithium, every element used in the chemistry of life was originally synthesized in stars that exhausted their hydrogen fuel and began fusing heavier nuclei.
As these ancient stars died, they cast off large clouds of heavy elements that ultimately went into the gas-and-dust clouds that formed the next generation of solar systems. All of the nitrogen, carbon, oxygen and iron used by life was present in the primordial cloud that formed the solar system. Carl Sagan's quote was a poetic way of expressing the chemical connection between living things on Earth and the stars above them.