That is based on the statement of Rav Nahman that "with most people forgetfulness is a lack. But in my opinion forgetfulness is a great thing. If one would remember everything that happened to him, he could never start afresh."
And Rav Natan takes this idea a bit further and claims that as much as one forgets his past, all the better.
You see this also in the LeM about starting new every day.
This shows the deep insight of Rav Nahman into human nature. It is a profound insight how important forgetting all ones' past is.
