What is the interpretation of the Almighty’s saying: "Then He forgives whom He wills and punishes whom He wills"?

The noble verse: "Whether you show what is in your souls or conceal it, Allah will hold you accountable for it. Then He forgives whom He wills and punishes whom He wills. And Allah is over all things competent," indicates that Allah is the possessor of absolute will. He holds people accountable for what they reveal or conceal within themselves, forgiving whom He wills and punishing whom He wills. It is narrated in Sahih Muslim that when this verse was revealed, it was difficult for the Companions, so the Prophet informed them to say: "We hear and we obey. Your forgiveness, our Lord, and to You is the return." Then Allah revealed after that: "The Messenger has believed in what was revealed to him from his Lord," and then it was abrogated by His saying, the Almighty: "Allah does not burden a soul beyond its capacity." This verse is among those whose ruling was abrogated, but its recitation remained.