The seats will be pre-allocated before check in even opens and will be assigned to passengers. Every effort will be taken to seat everyone together (those on separate bookings can even call the call centre to assist in this) but like unallocated seating and the tradditional allocated seating, when flights are over 90% full it may prove difficult yo have everyone physically sat next to each other. Even then, from experience of unallocated seats, it only tends to affect less than 5 people.
When it comes to seating everyone together it doesn't matter how seats are allocated or not allocated, on a full flight it is usually a physical impossibility. That is even before we get into peoples individual preferences.
Either way, it is a step forward.