Woolf discusses the role of and the constraints on female authors in these lectures, later turned into a published book. In her discussion of Austen here, Woolf discusses the way fiction has privileged the male perspective. Moving from heroic verse (Homer and Virgil, for instance) which she notes has little use for female characters, writers turned to novels, where women can play a more integral role. Even still, the novel, outside of Austen's works, tends to privilege the male perspective. Female characters are typically created by men for men; as a result, these characters are seen largely in proximity to men and therefore do not attain the fullness of character development men might in a similar work.
For instance, in Austen, women are represented as friends, siblings, and daughters. While the novels typically are romantic comedies, the inner life of a female protagonist is central to the work. Elizabeth Bennett, for instance, seems to be presented from a female narrator's perspective which takes seriously the other elements of her life beyond her interest in Darcy. Writing from a feminine perspective, and placing the lens of gender before her eyes, Austen provides a radically fresh approach to characterization of half the population.
This comment is similar to Alison Bechdel's test, in which she measures films in terms of whether they contain two or more women whom who discuss something other than men. Bechdel actually derived her test from the Woolf passage quoted above.