The Separation rules just tell how long until another track with the same property can be played (if it happens to be selected by the rotation logic).
i.e.: Track Separation rule 1 hr means that the very same track will not be repeated for at least 1 hour, even if the rotation logic would usually choose the same track again.
Artist Separation rule 1 hr means that if you play a track by Rihanna now, no other track by Rihanna will be played for at least 1 hour.
Album and Title separation work similar to Artist separation.
Note: This is always just a minimum time. If you have enough different tracks and set it the logic to LeastRecentlyPlayed, you will just naturally never encounter repeats and it can possibly take days until 2 tracks with similar properties are repeated, even though your minimum separation is only set to 1hr.
And it's not an intelligent matching. If you have Rihanna - Diamonds play now, you can still play Jay Z feat. Rihanna - Run this town right behind that as it's different artists.