The TL;DR is that the organization that controls the HDMI standard won’t allow any open source implementation of HDMI 2.1.
So the hardware is fully capable of it, but they’ll get in trouble if them officially implement it.
Instead it’s officially HDMI 2 (which maxes out at 4k @ 60Hz), but through a technique called chroma sub-sampling they’ve been able to raise that up to 4k @ 120Hz.
However there are some minor reductions in picture quality because of this, and the whole thing would be much easier if the HDMI forum would be more consumer friendly.
In the meantime, the Steam Machine also has display port as a completely issue free display option.
I would normally prefer no hdmi at all, but it’s an entry point device so it doesn’t really make sense to do that.