This particular quote is identified as one of the beginnings of the Lesart (the "story," as historians call it) that German physicists began to tell about themselves and their failure to produce a nuclear weapon during World War II. The Lesart became the way in which Heisenberg and others reconciled their technical failure with their patriotism and scientific self-regard: maybe they just didn't want to build a bomb, and maybe the state never really trusted scientists anyway, and so their failure was not really one of technical failure, but maybe some combination of a failure of the state and an act of conscience.

Later this evolved in these two directions — never would the Germans acknowledge the possibility that they had just not gone about it right, even though they likely would have built a bomb for Hitler if they had thought it was feasible.

Historians have gone over this history very closely. The basic "consensus" is that the Germans were not really trying to build an atomic bomb, because they did not think it was something that could be done in the timeframe of the war. They also made a few poor technical decisions that reinforced this feeling. Rather, they had a modest reactor program, and they worked very hard at that, but they left the war with complete satisfaction that they had done as much as any country could have done, and indeed were totally shocked by the news of Hiroshima, which showed them to be, as one of them sneered at the others, "second-raters." The Lesart became both a moral and technical reassurance; the moral end let them hold their heads above the scientists in the USA (who both built bombs and saw them used against civilians), and the technical end reassured them that they were not, in fact, "second-raters," and that the failure had been the state's, not theirs.

There is so much written on this it is hard to recommend where to start, but Jeremy Bernstein's annotated version of the Farm Hall transcript is very good (Hitler's Uranium Club).