Woolf uses the word "room" both literally and, as you note, figuratively to describe a larger concept. First, Woolf's overall point is that women have consistently achieved less in high-quality literary output than men not because they are mentally inferior but because they have been denied the resources men have...
traditionally had to develop their literary talents. The issue, in other words, is not one of genetics or gender but of economics.
Women do need a literal room of their own in which to think, to read, and to write, Woolf asserts. She says that women's traditional lack of private space has impeded their ability to write. She discusses, for example, Jane Austen, who was forced to compose her novels in a dining room and had to hide what she was working on whenever someone entered the room. Woolf argues that, although Austen was a great novelist, she could have achieved much more had she had a room of her own in which to work.
Woolf also sees women's second-class economic status as a wider problem than simply having a private writing space. She compares, for example, the wealthy and well-endowed men's colleges to the poor and ever scrimping women's colleges. She argues that it constricts a woman's imagination and sense of possibility when she is living in a space where dinner is plain mutton and water, versus living in a space where the roast beef and fine wine flow freely—or if you are barred from the college library because of your gender. In a myriad of small ways, women are made to feel they have less "space" and power to expand and are less deserving of giving free reign to their creative powers.