The comments don't explicitly say that you failed on any of the points mentioned, but the inference I would draw from reading them is that the reviewer felt that you had:
(a) applied to a category that is too large for a new editor,*
(b) has less than two example sites with which they aren't affiliated / connected in some way,** and
(c) Had some major problems with the titles or descriptions for the example sites***
To me, it would seem odd to mention those things with no qualification if they weren't seen as problems with your application, as that would be likely to lead to further confusion. However, the reviewer might not have intended it to be read that way, and they may also have been mistaken about one or more of the points. (We are all human after all.) I guess it's also possible that the reviewer intended the "reviewer comments" to be "helpful tips for your next application" rather than a list of problems with the current one, and that the reasons for rejection were all covered in the general points made above.
* The "up to about 50-60 sites" part is a bit misleading here, since the official wording on the application instructions is "generally categories with less than 100 sites". It's true that the larger a category is the more likely it is to be unsuitable for a new editor, and, all other things being equal, a borderline application may be more likely to be accepted if the category is smaller. However, new editors can be, and routinely are, accepted into categories with more than 60 listed sites.
** As it says at
http://www.dmoz.org/guidelines/conflict.html , affiliations aren't just sites you currently own. They also include sites you help administer or run (which would include forum moderation), have provided content for (but we're not worried about forums that you just post on), done SEO work for, helped design, etc. And also sites that you've owned or run or done any of the other things for in the past. Maybe this applies to one of your examples?
*** We certainly don't require new applicants to be perfect with their titles and descriptions, but it helps if they have made an effort. The guidelines can be found at
http://www.dmoz.org/guidelines/describing.html -- one common trap people fall into is just describing the business / product that the site is for, and not saying anything about the content that users will find on the site. But this alone shouldn't be a reason for an application to be rejected.
All-in-all, I'd suggest trying again with a new application. Do your best to understand all the possible problems listed in the email (both in the commons reasons section, and the reviewer comments), and then try to make sure your new application doesn't fall foul of any of them. Many current editors tool more than one attempt before their application was accepted, so I wouldn't be put off by an initial rejection.
