So this can't be used to co-op a game if I'm reading it right?
Nope.
In fact it seems like only one person can be using someone's library at a time. So if you have my account authorized on your machine and start playing Portal 2, but I log onto my account to play Left4Dead 2, even though they're separate games, it will still kick you off after a few minutes since simultaneous use of someone's library is not allowed.
Regardless, this is awesome and totally a step in the right direction. As someone who has 350 Steam games, I'm pretty sure my brother is going to be very excited he can play a bunch of my games.
Does this play nice with Steam's offline mode?
I highly doubt it, else how can they ensure only one person can use someone's library at a time? I would assume that if you go offline even when playing a single player game from someone else's library it will kick you out (probably after a set period of time). You also won't be able to start a game that you don't own while offline. So if you want offline access to a game, you need to pay for that game. Makes sense.