This is an age old line, which women use to "gently" let down a man that has shown a romantic interest in her.
Women believe that this is a nice way of saying "No". In reality it is a horrible way, because it isn't honest and it generally doesn't come with any explanation. Any guy with a decent head on his shoulders can see right through this deception.
It is also generally a lie. Women know that it would be extremely uncomfortable for a man that just got shot down to continue to be around them.
It is therefore, a generally safe rejection line, as very few unwanted men will ever respond with:
"Golly Gee, Can I please hang out with you and all your friends, all of whom know about this entire situation?? That sounds wonderful!! I'm sure we will have just the most fun and be the best BFF's ever!!!"
Also, it makes it seem as if the man is a jerk for rejecting this ridiculous "friend" compromise,(when she so nicely offered to keep letting him hang around her and be constantly reminded of what he can't have) and further justifies in the woman's mind her reasons for saying it in the first place!
"Let's just be friends."
or "I am only interested in friendship at the moment."
or "I'm sorry, I'm just not attracted to you."..........
Wait, THAT one would actually be a welcome one! It might actually be honest!
Seen all around the dating world. There is no further example needed. You or someone you know has been affected by this phenomena. Speak to your local sheriff about serving in your community LGBF watch.