In the context of the exam questions, this means that: your answers should be written in the space provided. For example, on a diagram in spaces in a sentence or in a table.
Examiners mark on a computer screen that repeatedly shows only one part of the same question at a time. We mark the same part of the same question over and over again. If you write anywhere on the exam booklet outside the area marked out for the part of the question you are answering then you run a significant risk of losing marks.
Writing on continuation paper does not have this problem so long as you clearly label your work. So if you run out of room don’t try squashing things in the margin – use the extra sheets – but make sure you make it clear which question(s) you are answering.