In a way, that is the gist of it, but also too simplistic. To Benedict, Roman Catholics and other particular Churches (in communion with the Roman Church) and the Eastern Orthodox Churches are genuine constituents of the Church as the Body of Christ (the Church catholic/universal). Protestant groups, on the other hand, have left the fellowship of the Church universal and therefore are not churches in the patristic and apostolic sense. But as Benedict is indeed a strict interpretor of Church doctrine, he also acknowledges that non-Catholics--as per the current Catechism of the Catholic Church--who sincerely seek God and serve him to the best ability of their conscience may be saved.

Benedict does not mean that Protestants "don't count", but that they do not have true churches: in other words, they are believers in Christ but outside of the fellowship of the One Holy Catholic and Apostolic Church. The catechism teaches that non-Catholics do have a small connection with the Church, but remain outside of it. Benedict's point is that the Roman Catholic Church (with her particular Churches) and the Eastern Orthodox Churches are one with the Catholic Church of Christ, while non-Catholic groups are communities of faith rather than churches.

It should be noted that the Church is not a man-made institution, but a family instituted by Christ, consisting of the living (the Church Militant on earth) and the dead (the Church Triumphant in Heaven).