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What does it mean if an agent is only accepting submissions by recommendation?

If an agent is only accepting approaches by recommendation this means that they will only consider your work if it comes with a recommendation from an established professional in the industry. If you want to approach such an agency then a good starting point is to find a list of their existing clients, and then find one which writers material similar to yours. Contact the author, telling them how much you admire their work, and see if they would be willing to read your work and give it a recommendation. If they do both of these things then this is something you can go back to the agency with.

This is obviously a lot more work that a normal submissions procedure, but the upside of that is that you will have less competition, as fewer people will be prepared to go to these lengths.

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