what is a ''closed out'' surf area

There is no peak on the wave. Waves usually break to one way or the other, and there is an open wave face to ride. On a close out however, the ENTIRE wave just collapses across the entirety of the wave. So the wave 'closes out'.

It is when the wave does not peel at all. The entire wave, or most of it, breaks at the same time. (or within a very short amount of time, making the wave not rideable)

When the entire wave breaks at once..generally happens at very low tide. Generally, as the tide rises, the shape of the wave will improve.