It means that it's too close to another object, house, cliff, river ect. You need to try a more open space with more room around it. The PWP should have at least one square free around it in order for you to be able to build it.
Yeah, sometimes I don't understand isabelle.She won't let me place my lighthouse in a certain spot.She says it's too close to the town tree.It's 4 spaces away from it, for crying out loud.
It means that quite literally, there isn't enough space. PWPs have a buffer zone, and if something that can't be destroyed is in that buffer zone, you can't place it there.
If you want PWPs to be as close together as possible, there has a two space-gap between them.