I think mostly it means the brewery space must be completely separate and the space can't be shared with some other use. I've heard you can open a brewery at your house if it's in a separate outbuilding, or at least a garage separated by a locked door. This probably depends on your local inspector, not to mention local regulations. State and zoning laws are often more restrictive.
Our brewery is in a separate building on our residential property. We had no problem at all getting a Brewer's Notice. (federal license) During our post-approval inspection by a TTB investigator, he was mostly concerned about how we measure our beer for tax paying purposes, and that all the doors, windows and such could be locked. (I'm guessing that the "effective administration" part) The first thing he said after introducing himself was "I am here to protect the revenue of the US Government." Kind of says it all. Although he also wanted us to get receipts from the pig farmer who picks up our spent grain. I asked him for a regulatory citation for that requirement, and he couldn't do such.
Another person in town is opening a cidery in his home. The feds forced him to remove the door between the garage and the dwelling space.