The lobby server is a server that basically acts as a gateway into the game - after you login you're connected to the lobby server while you select your character or create a new one. Like a game server, the lobby server can only handle so many people connected to it at once, and so when it exceeds this limit, it prevents people from connecting to it (hence the error). Think of it as a narrow doorway which a crowd of people are all trying to squeeze through at once - that's basically what's happening at the moment.