What is the significance of the expression, In Isaac shall thy seed be called?...

It is not the children born of the flesh who are the children, the chosen of God, it is the children who are born according to the Divine promise.

Paul’s point is that an Israelite—in terms of the prophecies and promises of the Scripture—is not merely an individual who descended from Abraham after the flesh, a natural descendant.

An Israelite, according to the meaning and intent of the Scriptures, is an individual who is born by Divine intervention in fulfilment of a promise given by the Lord God of Heaven.

"Israel" cannot be produced apart from Divine intervention and the miraculous fulfilment of God’s Word. Israel cannot be born of the natural reproductive abilities of human beings.