They meditated on the udgîtha (Om) as the breath (scent) in the nose, but the Asuras pierced it (the breath) with evil. Therefore we smell by the breath in the nose both what is good-smelling and what is bad-smelling. For the breath was pierced by evil.

In plain words: First the gods meditated on Om as the sense of smell in the nose. But the demons struck it with evil. That is why we smell both pleasant and bad smells.