The Ruzhiner Rebbe zy”a explains this Medrash by quoting the Gemara (Bava Basra 75B) that states: “Rav Elazar says: In the future, they (malachim) will say ‘Kadosh’ in front of tzadikim, in the same way that they it before Hashem...” Accordingly, the Medrash is saying that when Hashem tells us to be holy, we should, in fact, think that we can be as holy as Him. In other words, the Medrash is teaching us how we can be holy like Hashem.
It says that the way to do this, is “to say that I am holy.” If we constantly say that we are holy, we can keep away the yeitzer hara. Whenever it tries to lure us to sin, we should repeat that we are holy and, therefore, it is unfitting for us to sin. And when the yeitzer hatov tells us to do a mitzvah, we should say that we are holy and, therefore, we should do it. If we do this, we will one day reach the level of having angels say “Kadosh” before us, just like they do for Hashem.
