I left my job and want to withdrawl my 401k. My former employer said they send the cash out in the form of a tax credit? What does that mean?

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They most likely meant that they will send you a check, but they are required to withhold 20%. This is sent to the IRS and when you file your taxes, it will be applied to pay your tax or you will get a refund. You will get a 1099-R for the year it is withdrawn. Remember, you must pay the taxes on the total amount taken out, in addition a 10% early withdrawal penalty applies if you are not at retirement age or qualify for one of the exceptions.

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