Duncan Hallas succinctly explained, it means:
failure to relate to the concrete struggles of workers, however difficult it may be to do so, and to set up utopian schemes as alternatives.That is, rejecting what really exists in the $2.99 material world (including the things which don't really exist but which humans agree exist - the gods of the tribe, or in the modern world, money) in favour of some scheme that the sect made up themselves.
He quotes Trotsky, and let me edit his quotation a bit to make it more universal:
The sectarian looks upon life as a great school with himself as a teacher there ... Though he may swear by [liberatory principle] in every sentence the sectarian is the direct negation of [actual enlightenment], which takes experience as its point of departure and always returns to it ... The sectarian lives in a sphere of ready-made formulae ... Discord with reality engenders in the sectarian the need to constantly render his formula more precise.All this boils down to: a sect is a group which considers what happens inside the group more important or more "real" than what happens in the big wide world. They made up something (a group, an ideology, a schema) and made that their world. So the health of the "little world" is considered more important than the "big one", as if just because it's smaller and more cozy it's more "real".
One common outcome of this is that the sect develops "its own justice" to shield its own members from the consequences of their actions (karma). This is of course the logic of the authoritarian, abusive family - "don't you dare tell outsiders what happens in here". So we find the Catholic Church and the ultra-orthodox Jews sheltering child-rapists from real-world justice; we find the Church of Scientology doing everything they can to make sure no Scientologist had to answer for the death of Lisa McPherson.
Speaking of the clams, I've mentioned before Hubbard's idea of ethics which meant if you were doing good things for the group you were allowed to commit sins against basic human decency, but if you weren't "producing" you were punished for the most minor infractions. Who doesn't see this happening every day in actually existing radical groups? We see this in the idea that "good comrades and activists" get excused for, for example, behaving atrociously towards women.
But the point is, any organisation which tries to change the world by drawing hard boundaries between itself and the world is doomed to failure and to become a caricature of itself, just like someone who raises their ego boundaries to the point where they can't actually feel anything outside of their own heads.