"I am hiphop" is one of the many statements made by KRS-One that seems confusing and controversial to many. At the simplest level, it can be understood as KRS-One bragging about his important role in hip-hop. While KRS-One certainly has had a gigantic impact on the development of hip-hop culture, and is not shy in addressing the fact; there are several levels being worked on here. And I understand these things because I, too, am hiphop.
One of the first things to be remembered is that KRS-One draws much of his inspiration (as well as his name) from the teachings of Krishna. One of the most important teachings is the concept of the Atman, the "real self that is one with all", the idea that the sense of "I-ness" that is at the center of everyone's conscience is the same and universal. KRS-One has had at point distinguished the physical, historical KRS-One from the Atman he is a manifestation of. So when KRS-One says "I am hiphop", he is in fact saying "The 'I' is hiphop".
As heady of an idea as this may be, that is only the first level of what KRS-One is saying. The second level is KRS-One endorsing the idea of cultural and personal self-creation. Instead of positing "culture" as an "objective" entity "out there" that the personal "subject" somehow chooses and adapts to, KRS-One is saying that a person can both embody and create a culture. It is a very interesting idea, especially since it seems oppose a trend in the culture of hiphop and the United States of America: a strong belief in essentialism, or, as it is phrased in hip-hop "keeping it real". Instead of saying that there is some sort of "essence of hip-hop" that people can identify outside of themselves and relate to, KRS-One identifies hip-hop in an existential way: hip-hop is what the person chooses to do, and be. On the other hand, KRS-One also talks about "real hip-hop", a seeming paradox, but KRS-One has never shied away from self-contradiction. The idea of self-creation, something that every person and culture must grapple with, is a bit of an inherent paradox.
So when KRS-One says "I am hiphop", he is not saying that he is the biggest, most important MC (he says that elsewhere). What he is stating is that without the constant choice of the sense of "I" inside each one of us to go out and embrace and create, there would be no culture, because culture does not exist as an abstract essence for people to discover.