It means isolating wireless clients on the same WLAN from each other.
They will still be able to access LAN resources in the absence of other restrictions (which often are applied to guest networks so that clients can only access the internet, for example).
If SSID1 is bridged to the LAN then shared resources there will be accessible too, by design. They aren't on the same WLAN, so they're not hidden.
AP isolation is meant for situations like a hotel, where you want to give guests access to the internet but don't want them whiling away their lonely hours hacking each other. By itself, that's all it does. Protecting the hotel's own network is then a separate task.
AP isolation isn't quite as useful at home as it appears at first glance, generally.