I had to know myself so I just googled it. It seems that it refers to the accuracy or 'resolution' of the gears in the rotary table itself. So if you were to make 4 points on the workpiece at exactly 90 degrees to each other, the maximum spacing error would be how far off EXACTLY 90 degrees apart they could actually be. It's expressed in arc minutes and seconds, so the actual linear error will increase with workpiece size.
An example given (although not my math) is a maximum spacing error of 1'20" (one minute, 20 seconds of arc) for a 10" diameter, assuming one point is maximum positive error and another is maximum negative error, the most these two points would be 'out' of perfect is 0.004". The smaller the part the less these two points could possibly be out.